For Struggling Euro Disney, Help From Across the Pond

Times Staff Writer

For the second time in a decade, Walt Disney Co. is reaching across the Atlantic Ocean to help shore up the finances of the Disneyland resort outside Paris.

Disney and three French banks on Wednesday agreed to a financial bailout of Euro Disney, which is grappling with heavy debt and slow ticket sales. About $2.9 billion in debt would be refinanced, and Euro Disney would issue an unspecified amount of stock to raise cash and help pay for new theme park attractions.

Disney could purchase as much as $120 million of the new stock in Euro Disney, said a source familiar with the deal.

Although the rescue package would avert a financial crisis, it wouldn't get Euro Disney out of the woods entirely. Analysts say there are many challenges ahead for the publicly traded company, which is 39% owned by Disney and operates the Disneyland Paris resort and its sister park, Walt Disney Studios.

"It's a lifeline," said Mark Abramson, an analyst with Bear Stearns. "The major obstacles, however, remain in place."

The bailout agreement is subject to approval by Euro Disney's other creditors as well as investors, including Prince Alwaleed bin Talal, a Saudi billionaire.

The prince, who owns 16% of Euro Disney and is the second-largest shareholder after Disney, played a pivotal role in the last restructuring. He has been courted by Disney executives to do the same again, perhaps through a purchase of some of the new Euro Disney stock.

But Alwaleed is reluctant to substantially increase his equity stake in Euro Disney because the value of his original investment of $300 million has fallen by about one-third as the company's financial fortunes have soured.

A spokesman for Alwaleed declined to comment Wednesday.

The woes of Euro Disney have been an embarrassment to Disney Chief Executive Michael Eisner, who survived a shareholder revolt this year over the company's poor financial results -- to which Euro Disney has contributed.

Euro Disney's first financial crunch followed the disappointing 1992 opening of Disneyland Paris. Although it cost hundreds of millions and ranks as one of the most lavish resorts ever built, many Europeans initially turned up their noses at the American-style theme park and, among other things, its ban on wine. Hurt by recession and heavy debt, Euro Disney saw its shares plunge on the Paris stock market. Bankruptcy loomed.

After several cultural concessions -- the ban on wine was lifted -- and a financial restructuring made possible by a cash injection from Alwaleed, things turned around. In fact, Disneyland Paris went on to become the most popular tourist destination in Europe.

Plans went ahead for the sister park, Walt Disney Studios, which cost more than $600 million. The latest financial crisis unfolded last summer as a result of losses incurred by that park, which had the misfortune of opening in March 2002 -- just months after the Sept. 11 terrorist attacks.

Disney executives said the park also was hurt by subsequent events, including the war with Iraq, the outbreak of severe acute respiratory syndrome in Asia, harsh weather in Europe and a series of transportation strikes.

Making matters worse, analyst Abramson said, French labor laws have hampered Euro Disney's ability to carry out needed cuts in the resort workforce of about 12,000. Disneyland Paris also has failed to lure as many tourists as anticipated from Germany, which the company had hoped would be a key feeder market, he said.

To be sure, Disney isn't the only theme park operator to stumble in Europe. Other players have struggled, including Universal Studios, which operates a theme park near Barcelona, Spain, and Six Flags, which sold its European parks division this year.

Among the reasons for the troubles, said James Zoltak, editor of Amusement Business, are security concerns among European travelers and the difficulty American companies have in appealing to European cultural sensitivities.

Meanwhile, Disney's North American theme parks have been recovering along with the economy, giving an important boost to the company's earnings.

To give its European subsidiary some breathing room, Disney decided to forgo tens of millions in royalty and management fees from the French resort in fiscal 2003. Disney also provided $52 million in backup financing. And Euro Disney launched an advertising blitz to spur business.

Still, Euro Disney's losses widened to $134 million in the six months through March 31.

Through it all, the French government has been a strong backer of the resort, which is a major employer and contributor to the nation's tourism economy.

One of the resort's principal creditors is state-owned bank Caisse des Depots et Consignations, which is also one of three lenders involved in the financial bailout.

The other two are leading French banks Credit Agricole and BNP Paribas.

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