Epsilon – 2
Elizabeth Bostwick, Carson Barr, Raul Melano, Brad Myers, Ajey Raj

Executive Summary:
In 1984 Walt Disney was a company that had seen better days. Growth prospects were limited, Wall Street analysts weren’t convinced with Disney’s strategy, and Saul Steinberg was currently on the track for a hostile takeover of the company. Walt Disney had doubled down on feature films/TV and theme parks, however the market itself wasn’t responding to Disney’s revenue generators. In 1983 alone, Disney lost over $33 million in its film segment and only two of ten feature films were positive net income projects. To make matters worse, Disney’s theme-park attendance growth was inconsistent despite attempts to create impressive attractions. This paper will discuss viewpoints from the shareholders and Disney perspective on the hostile takeover based on past, current, and future actions within the company.
Shareholder Actions
As a Disney shareholder, we would accept Saul Steinberg’s offer. Several considerations contribute to this conclusion. Selling the shares to Steinberg will immediately provide shareholders with a 50% capital gain. Additionally, long-term growth prospects for Disney under current conditions are bleak. Revenue is increasing; however, net income is decreasing. Consequently, Disney’s expenses are increasing. Weak synergies among Disney business units also weaken long-term growth prospects. Analysts have expressed doubts concerning Disney leadership, particularly “[…] the lack of creative leadership after the death of Walt Disney in 1966” (5). They speculate leadership weaknesses will detract from long-term growth of the company. Analysts also cite other aspects of the overall company performance as reasons for questioning Disney’s capacity for growth.
Low growth rates of theme park attendance also contribute to low growth prospects for the company. Over the last decade, industry average for theme park attendance has a 5% annual growth rate. However, Disney’s growth rate for theme park attendance has been extremely low—generally close to zero.
Data from past performance—the last five years—also demonstrates that the rate of return for one-year T-bills is actually higher than the after-tax return assets for Disney. For instance, in relation to theme parks, Disney invested $1.9 billion in EPCOT construction; however, Disney only generated $45 million from the EPCOT investment—“[…] less than a 4% return on EPCOT” (4). Investing in Treasury Bills would have generated a higher return than the EPCOT investment.
Finally, the current high stock price does not reflect shareholder confidence in future company performance. Shareholder stock price is a reflection of shareholder expectation of a leveraged buyout (5).
CEO Actions
The current situation faced by Ron Miller and Disney is a very interesting existential problem. With the Market Value of Disney being less than the projected value of the companies physical assets, allowing this hostile takeover occur would more than likely mean the end of Disney as a company.
Looking at the current market conditions