Walt Disney Productions Inc. (Disney) is the target of a takeover attempt by Saul Steinberg. Over the course of several months, Disney management has resisted the takeover in several ways including the acquisition of Arvida Corporation in a "for stock" deal and the pending acquisition of Gibson Greeting Inc. (Gibson). Steinberg has countered these moves with a public tender offer of $67.50 per share if Disney acquires Gibson and $72.50 if Disney does not acquire Gibson.With a current price of approximately $50 per share, Steinberg's offer is 35% to 45% above market value.
This paper addresses two questions. The first question is answered from the perspective of the ...view middle of the document...
As an investor, in the short-term this could be seen as a negative indicator of Disney’s operations. Although dividend payments are consistent, they do not compensate for the drop in stock value
2. The price of the firm-
Disney’s P/E ratio in 1983 was 15 well below the industry average P/E ratios of 20-25 as per S&P 500. The declining P/E ratio can also be attributed to declining quarterly earnings of Disney as reflected in their decreasing EPS since 1981. ROE for the past three years have also been less than the US Treasury bill (Exhibit 6), which could encourage the investors to invest in government-backed T-bill that carry no risk as opposed to investing in Disney.
3. Rationale behind investment are based in the financial fundamentals of the company
Disney shareholders should avoid speculation and make their investment decisions based on the data and facts presented in the case. Profit margins have been declining since 1973 at a rate of .5% a year, making shareholders very nervous about the future of the company. Additionally, Disney does not hold any competitive advantage in the film production business, where Columbia Pictures, MGM, and Universal dominate the market. Aging U.S. population threatens to decrease park attendance and affect revenues in that business unit. Innovation to address the changing demographics of the market seem to be constrained by the resistance created by leaders of the company that are part of the old Disney cult.
So, from the shareholder point of view, it would be advantageous to accept the offer and maximize profits. Since Steinberg's tender offer is well above market value and close to the estimated asset value per share at $64 to $99 as predicted by C J Lawrence (Exhibit 13), the tender offer should be accepted.
Analysis: As Management
Management's primary responsibility is to maximize shareholder value. While this appears straightforward, it depends heavily upon management's good faith belief in the future of Disney. If...