Disney Corporate Strategy(a).Pdf Essay

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Disney Corporate Strategy(a).Pdf

Introduction The next big takeover fight – and it would be a beauty – may involve Walt Disney Productions. By the time you get this issue, Disney’s defense strategy may already be unfolding. But it will produce no quick victory for Disney even if a white knight comes along, and even if the principle attacker, Saul Steinberg, can be bought off. One by one, Hollywood’s great studios have been plucked by the smart out-of-town moneymen. Paramount by the late Charles Bluhdorn. Twentieth Century-Fox by Marvin Davis and Marc Rich. MGMUnited Artists by Kirk Kerkorian. Columbia by Coca-Cola. Now, it may be Disney’s turn. But Disney will not go quietly. – Forbes, June 4, 1984 Ron Miller, Disney Productions’ CEO reflected on the remarkable events of the past several months. Disney, the symbol of wholesome family entertainment, had become the target of a hostile takeover attempt by a well-known raider, Saul Steinberg. Steinberg now owned 12% of the firm and was threatening to acquire more. While Miller had orchestrated several defensive maneuvers, Steinberg had now announced a public tender offer to purchase 49% of the equity at a price that was a 45% premium over where the stock had been prior to the raid. To fund this purchase, Steinberg was promising to sell the film library and certain real estate assets to outside investors. Steinberg also had a track record of accepting greenmail, having received $47 million just months prior from Quaker State Oil Company. Miller faced a clear dilemma as to how best to respond. Should he continue the defensive fight by paying greenmail or should he encourage the board to sell the company? History of Disney With a $500 loan, animator Walt Disney and his brother Roy founded Walt Disney Productions, an animation film studio, in 1923 in Anaheim California. One of Disney’s first popular cartoons was “Oswald the Lucky Rabbit.” Unfortunately, Disney lost the 1 Research Associate Peter Eberle prepared this case under the supervision of
Professor Todd R. Zenger of the Olin School of Business for exclusive use as an in-class discussion piece. The information in this case was obtained from published sources and in some instances raw data has been estimated. *This case is based upon “Walt Disney Productions: Greenmail” published by Harvard Business School Publishing, 1988.

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contract dispute with his distributor because Disney did not own the copyright. After this incident, Disney was very astute about maintaining copyright control over his characters and content. Disney’s breakthrough came in 1928 with the animated short, “Steamboat Willie,” the first animated film featuring sound. It also introduced the first of many famous and timeless Disney cartoon characters, Mickey Mouse. Disney also was the first to use color animation with the cartoon “Flowers and Trees” in 1930. In another innovative and risky move, Disney created and released the first feature-length animated film, “Snow White,” in 1937. At the time, full-length animated films were not considered commercially viable. Nonetheless, “Snow White” was a critical and commercial success and was the first in a string of animated films over the next decades, including: “Pinocchio,” “Fantasia,” “Dumbo,” “Bambi,” “Peter Pan,” “Cinderella,” and “Sleeping Beauty.” Disney’s films were initially successful due to the style and high quality of animation, attention to detail, timeless and family-oriented story lines, and timeless characters such as Mickey Mouse, Goofy, and Donald Duck. Disney not only used these characters throughout multiple films and cartoons, but also leveraged and increased their reach through merchandising, beginning in 1929 with a licensed Mickey Mouse pencil tablet. Placing these characters on T-shirts, watches, toys and other items increased both profits and recognition of the characters, and Disney, among consumers. Following his success in animated films, Disney moved into non-animated films in the 1944 with the establishment of the Educational and Industrial Film Division. The first major success of this division was “Seal Island,” a nature film that won an Oscar in 1949. Also in 1949, Disney formed a music company to create, produce and maintain control over the music and songs featured in Disney productions but often performed by famous
artists. Disney later moved into live-action features with “Treasure Island” in 1950. Disney continued to innovate in the live-action format by combining animation with live action in the film “Mary Poppins.” As Disney’s film library had grown, Disney brought distribution in-house with the formation of Buena Vista Distribution Co., in 1953. In films, Disney kept costs low by developing its own talent pool. For cartoon features, characters were infinitely reusable and never required a salary, while for live-action features, Disney shied away from using well-known and expensive talent. Audiences were drawn because of the reputation Disney had established for providing quality, reliable, and predictable family entertainment. In the early 1950s, Disney was quick to recognize the growing medium of television to provide new outlets for Disney characters with “The Wonderful World of Disney” first airing in 1953 and “The Mickey Mouse Club” in 1955. Disney’s television productions both the long-running shows and features were quite successful. During the same time, Walt Disney envisioned a theme park that would bring the characters and stories of Disney to life featuring entertainment for all ages. Again, his idea was considered too risky and he was unable to raise substantial outside funding for the project. He purchased 225 acres outside of Anaheim and opened Disneyland in 1955. Disney Strategy (A) 2 Olin Business School

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Disneyland was hugely successful, grossing $10 million in 1956. Cross-promotion of the park was achieved through featuring it on the “Wonderful World of Disney.” The only drawback of Disneyland was that private hotel, restaurant and shop owners who built adjacent to the park profited hugely from park attendance, but Disney was unable to share in these revenues. Additionally, due to the small size of the park there was little room for further development both inside and outside of the park To address the drawbacks of Disneyland, Disney purchased 28,000 acres near Orlando Florida in 1964 and 1965. This would provide the site for Walt Disney World, which would include not only the theme park aspects of Disneyland, but also hotels and accommodations, shopping, camping, natural areas, and permanent residential and industrial areas. Also, with 28,000
acres (as opposed to Disneyland’s 225) there was ample room for future expansion. As with Disneyland, Walt Disney World was extremely well planned and laid out with no expense spared to achieve the quality and attention to detail for which Disney was known. Following the opening in 1972, the park was wildly popular and extremely profitable, attracting 11 million visitors and bringing in $139 million in revenues its first year. Walt Disney World would shortly become the number one travel destination in the world. Disney formed the Walt Disney Travel Company to work with travel agents, tour organizers and airlines in order to drive travel to the Walt Disney World area. Walt Disney World provided the stage for another of Disney’s visionary exploits, the Experimental Prototype Community of Tomorrow (EPCOT), the concept for which Disney laid out prior to his death in 1966. EPCOT’s construction began in the 1970’s and it opened in 1982. Following Walt’s death, Roy O. Disney assumed leadership and focused on the theme parks: completing Walt Disney World and EPCOT. The successes of the theme parks led to a joint venture with the Oriental Land Company of Japan in 1976 to develop Tokyo Disneyland, which opened in 1983. This project required no capital investment from Disney, who received a percentage-based licensing fee, as well as provided consulting services during operations. The venture was completely owned by the Japanese partner, but was planned and operated by Disney. In 1983, the Disney Television group entered the cable TV distribution with the Disney Channel. Also in 1983, they launched Touchstone Films, an independent film label, to allow Disney to produce and market films with more mature content and reach a more adult audience where movie attendance was strong. It was hoped that an independent label would not tarnish the Disney image. The first release was “Splash,” in 1984, which was the highest grossing Disney film since 1964. Walt Disney Productions’ Businesses As Disney grew over time, new subsidiaries and divisions were created as Disney engaged in new activities. The corporate office grew to manage the various subsidiaries and divisions. By the late 70’s, Disney had four primary business lines: Entertainment & Recreation, Motion Pictures, Consumer products, and Real Estate. Disney Strategy (A) 3 Olin Business School

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The Motion Pictures group oversaw animation and production of films, managed rerelease of existing film properties, television production, and the cable television channel. This division’s contribution to revenues and net income to the overall company had steadily decreased over time, falling off significantly by the mid-70’s (with the groups actually losing money in 1983). Production of animated films fell off with the slack being taken up by live action films including sequel series such as Herbie, “The Love Bug.” Walt had been averse to sequels and following popular sentiment. Live-action films released during the 70’s had been perennial money losers contributing heavily to the drag in divisional earnings. It was hoped that the newly established Touchstone Films studio would appeal to a wider range of audiences and increase both revenue and profitability. In 1983, Disney’s long standing presence on prime time television ended with the cancellation of “The Wonderful World of Disney.” The group relied on re-release of the classic animated features to bolster revenue, often tying distribution of new films to the re-releases. This also had the effect of constantly introducing younger generations to the Disney classics. While the value of Disney’s film library was significant, the group found difficulty in determining the best vehicle to realize the maximum value. It was felt the television and home video releases would cannibalize or otherwise lessen the existing, profitable, theatre re-release channel. It was estimated the value of Disney’s film library was worth $275 million (Exhibit 6). While having a successful launch, the Disney cable pay-channel would take a number of years before becoming profitable. The Entertainment & Recreation division managed the theme parks, hotels, managing the licensing arrangement with Tokyo Disneyland, and management of the land surrounding Disney World. While the theme park and resort business was the most recent new business, or “diversification” move by Disney, it had grown to dominance in the corporation. In terms of revenue and net income, it accounted for close to 79% of total revenue and 90% of total corporate profits (Exhibit 1). While operating income jumped significantly in 1983, the prior years provided very modest growth. Moreover, attendance at Disneyland had been flat for five years. Consumer Products managed the merchandising of Disney characters and intellectual properties that included character merchandising (the lead
revenue generator), publishing and books, music and records, and educational media. The division had been consistently profitable, but there was concern because of increased competition from newer cartoon characters with more television exposure. Operating income had been rather flat over the prior four years. Leadership at Walt Disney Productions From the founding of the company until his death, Walt Disney created or approved every major strategic move and development. He provided the vision and decisive leadership that made Walt Disney Productions successful. He realized his belief that one Disney Strategy (A) 4 Olin Business School

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could create a timeless entertainment experience that would appeal to the entire family, children and adults a like. Additionally, he maintained complete control over the customer’s entertainment experience in order to ensure that the Disney philosophy and experience was complete. Walt Disney constantly innovated and took significant risks on new ideas and concepts, most of which met with significant success. His confidence and acumen in identifying and vigorously pursuing good ideas led to many firsts in entertainment. Walt Disney also placed great importance on passing the Disney culture and values on to all employees, including executives, with all new employees attending a training program where the company’s value and strategy were explained. Great value was placed on communicating openly, teamwork, creativity, and cooperation. Walt inspired a congenial, informal atmosphere throughout the organization. This culture was very deep among employees, many of whom spent their entire careers with Disney. Disney University was founded to be the keeper and purveyor of the Disney culture. Walt, who died on December 14, 1966, was succeeded by his brother, Roy O. Disney. Upon Roy’s death in 1971, Card Walker, who had been with the company since 1938, assumed the leadership position. Following the completion of EPCOT center, Card resigned and was succeeded by Ron Miller. Being Walt Disney’s son-in-law, it had been expected that Ron Miller would eventually be appointed to CEO. Prior to his appointment to CEO in 1983, he had led the Disney film studio since 1976. Ron Miller, a football star at USC, had met Walt’s daughter Diane while in college and married shortly thereafter.
Following a brief stint in the Military he played for the Los Angeles Rams football team. Concerned over his being knocked unconscious in two games, Walt urged him to quit football and work for the company. In general, people were promoted from within the company ranks, usually based on seniority. Through 1984, Disney was managed by its founders, family and insiders who had grown up within the organization. Although possessing many years of experience within Disney, the post-Walt management lacked Walt’s vision and leadership. At the core of Disney were Walt’s ideas and grand accomplishments to which it seemed that no one but Walt could build upon. And, attempts to capture and pass down his leadership style were unsuccessful. Additionally, much of the focus following Walt’s death was on fulfilling his final wishes and serving as caretakers to the kingdom. Upon taking control, Ron Miller saw the need to create new legacies for Disney, particularly in the films group. Some positives resulted, including the creation of the Touchstone label and release of successful films like “Tron” and “Splash.” Nonetheless, these additive actions lacked the impact that many of Walt’s grand ideas had had on the company and the industry.

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In 1983, the Disney family collectively held around 13.7% of Disney with Roy E. Disney being the largest of the family shareholders with around 3% ownership and a seat on the Board of Directors. Managers and long-time employees held 2-7% of the company. With the super majority vote rule in place, requiring in excess of 80% shareholder approval to affect a management change, and unified Disney and management shareholder group, the current management felt that it could operate without concern of shareholder and market pressures. Financial Performance and Condition From the early 1960’s until a peak in 1973, Disney’s stock price had steadily outperformed
the S&P 500. In the following years the stock price had declined somewhat and then stagnated through the late 70’s and early 80’s (Exhibit 4). While the share price had peaked at $84 per share in early 1983 after the initial success of EPCOT, it fell into the $40-range following news of losses in the film division. Additionally, EPS performance had declined significantly from a peak of $4.16 per share in 1980 to $2.70 per share in 1983, the lowest EPS in the past 6 years. Throughout its history, Disney had generally operated completely free of debt, only occasionally taking on debt for completion of large projects, such as with the final construction phases of EPCOT in 1981, 1982 and 1983 (Exhibit 1). Prior to 1981, Disney was relatively debt free since 1977. Even when Disney took on debt, leverage was low (with a coverage ratio of 11.6 in 1983). Due to the tremendous amount of free cash flow thrown off from the theme parks, Disney had been able to internally fund growth without needing to access the capital markets regularly. The debt taken on to complete EPCOT, as prior experience dictated, would be paid down rather quickly once revenue from EPCOT was realized. However, there was growing dissatisfaction and impatience among the investing community in regards to management’s lack of urgency regarding Disney’s lackadaisical stock performance. Although near-term earnings forecasts predicted improvements, there were no signs of improvement in stock value. Analysts and the media had begun to increase pressure on management by publishing the break-up value of Disney’s business lines. These values ranged from $60 to as much as $110 per share, well above the current trading value (Exhibit 3). Moreover, the end of year 1983 book value per share (total assets/shares outstanding) was around $68 per share while the year-end stock price was $52-5/8. Hostile Takeover Attempts, Defense and Greenmail On March 9, 1984 the price of Walt Disney Productions stock was $52-1/4 and had been stable over the past 6 months. On March 9, Roy E. Disney resigned from the Board of Directors after being re-elected to the Board in February. Shortly thereafter, trading volume of Disney stock increased several times over the average daily volume, pushing the price upward (Exhibit 5). By March 23, Disney stock closed at $66-7/8. In Disney Strategy (A) 6 Olin Business School

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preparation of an apparent takeover attempt, Ron Miller and his management team increased Disney’s credit line from $400 million to $1.3 billion. At the end of March, Saul Steinberg’s Reliance Financial Services Corporation announced that it had purchased 6.3% of Disney’s stock and intended to buy more. By April 13, Steinberg had increased his share of Disney to 9.3%, costing around $176.9 million. Roy E. Disney had also increased his share of Disney to 4% from 2.7%. In late April, Steinberg declared his intent to increase his share to as much as 25% and executed a million share block purchase on May 1st for $65.50 per share. After assembling a takeover defense team, Disney announced a deal to acquire Arvida Corporation on May 17th. Arvida was a southeastern US real estate development company that was controlled by the Bass brothers of Texas who had purchased 70% of Arvida for $20 million five months prior. The Bass brothers would receive $200 million in Disney stock. The deal was denounced separately by both Steinberg and Roy E. Disney as destroying shareholder value. Steinberg threatened to block the transaction by buying control of Disney and selling the assets. In spite of Roy E. Disney’s opposition and Steinberg’s threat, the acquisition was closed, issuing 3.3 million shares, or 8.8% of Disney, to the Bass Brothers. Steinberg’s 4.2 million shares now controlled only 10% of the company down from 12%. The move also diluted Roy E. Disney’s ownership stake. In a further move to dilute Steinberg’s ownership stake, Disney announced a deal on June 6th 1984 to acquire Gibson Greeting Cards for $310 million in stock from an LBO partnership. Gibson Greeting cards had licensed numerous popular cartoon characters (Bugs Bunny, Garfield the Cat, etc.) for its cards but did not have any licensing agreements for Disney characters. The acquisition of Gibson, which had been purchased from RCA in 1982 for $80 million (most of which was debt), would add $41 million to Disney’s debt and dilute Disney’s equity by an additional $310 million in stock. Two days later in an attempt to block the deal, Saul Steinberg made a tender offer of $67.50 per share cash for 37.1% of Disney Stock with a promise to boost the offer to $72.50 in cash and securities for cancellation of the Gibson acquisition. By that time, Steinberg had spent $265.6 million for his 10% ownership stake in Disney. Steinberg obtained additional financing to support this tender offer by granting Kirk Kerkorian, the controlling shareholder in MGM/UA, an option to purchase all of Disney’s motion picture and cable TV assets and to the
Fisher Brothers, the right to develop Disney land surrounding the theme parks for hotels. The Present Dilemma Nothing in Ron Miller’s experience had prepared him for these circumstances. He had assembled a defensive team to fight the hostile takeover, but perhaps allowing Disney’s breakup was a better option. Should he buy off Steinberg with greenmail? If so, at what price and how could this be justified to shareholders? Disney Strategy (A) 7 Olin Business School

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Exhibit 1
WALT DISNEY COMPANY FINANCIAL INFORMATION
source: Disney Annual Reports, Disney Corporate Fact Books, Mergent, Global Access Note: Some numbers are estimates and slight structural modifications have been made to produce “standardized” statements CONSOLIDATED STATEMENT OF INCOME (in millions of dollars) Year Ended September 30th Revenues Filmed Entertainment Theme Parks & Resorts Consumer Products Total Segment Revenue Costs & Expenses Filmed Entertainment Theme Parks & Resorts Total Segment Costs Operating Income Filmed Entertainment Theme Parks & Resorts Consumer Products Total Segment Operating Income Total Operating Income Corporate Activities General & Administrative Expenses Net Interest (Income) Expense Acquisition Related Costs Design Projects Abandoned Total Corporate Expenses (Income) 7.3 56.9 5.1 21.3 4.6 -2.3 4.3 -16.7 2.4 -8.2 35.6 14.1 30.9 -14.8 26.2 -33.1 21.3 -42.1 17.8 -28.4 -$33.4 197.0 56.9 220.4 $220.4 $19.6 132.6 47.8 200.0 $200.0 $34.6 129.4 50.6 214.7 $214.7 $48.7 127.5 55.0 231.3 $231.3 $40.2 120.6 44.8 205.7 $205.7 $198.9 834.0 1,086.7 $182.5 593.0 830.2 $162.2 562.4 790.0 $112.3 515.9 682.9 $111.8 387.8 535.4 $165.5 1,031.0 110.7 1,307.4 $202.1 725.6 102.5 1,030.3 $196.8 691.8 116.0 1,005.0 $161.0 643.4 109.7 914.5 $152.0 508.4 80.6 741.0 1983 1982 1981 1980 1979

Income Before Income Taxes (EBIT) Unusual Charges Income Taxes Net Income Earnings (Loss) Per Share Avg. Number of Common Shares Outstanding

163.5 70.3 $93.2 $2.70 34.5

178.8 78.7 $100.1 $3.01 33.2

217.0 95.5 $121.5 $3.72 32.6

248.0 112.8 $135.2 $4.16 32.5

213.9 100.1 $113.8 $3.51 32.4

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WALT DISNEY COMPANY FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEET (in millions of dollars) September 30th Assets Cash & Cash Equivalents Investments Accounts Receivable Merchandise Inventories Inventories Income Taxes Refundable Film & Television Costs Prepaid Expenses Theme Parks, Resorts and Other Property, at cost Attractions, Buildings and Equipment Accumulated Depreciation 2,251.3 -504.4 1,746.9 Projects in Progress land 108.1 16.7 1,871.8 Other Assets Total Assets Liabilities & Stockholders’ Equity Accounts Payable Income Taxes Payable Borrowings Unearned Royalty & Other Advances Other Deferred Income Taxes Other Long Term Liabilities, Unearned Royalties & Advances Stockholders’ Equity Common Stock (1) Common Stock Internet Group Paid-in Capital Retained Earnings Less Treasury Stock & Compensation Fund Shares Total Stockholder’s Equity Total Liabilities & Stockholders’ Equity 1,401.0 $2,381.2 1,274.8 $2,102.8 1,167.1 $1,610.0 1,075.0 $1,347.4 961.0 $1,196.4 738.6 1,400.5 686.5 1,274.8 626.2 1,167.1 537.1 1,074.4 425.2 961.1 661.9 588.3 540.9 537.7 535.9 321.8 110.0 181.0 94.7 89.0 61.9 96.8 98.0 $187.6 50.6 346.0 109.6 $210.8 26.6 315.0 $148.5 33.1 110.0 $109.0 36.2 30.4 $74.6 45.2 18.6 93.7 $2,381.2 1,916.6 -419.9 1,496.7 160.1 16.4 1,673.2 103.0 $2,102.8 968.2 -384.5 583.7 469.2 16.4 1,069.4 21.3 $1,610.0 935.2 -352.1
583.1 163.1 16.4 762.5 19.4 $1,347.4 882.1 -310.8 571.4 60.7 16.3 648.4 19.2 $1,196.4 $18.1 0.0 102.9 77.9 77.9 70.0 126.9 19.8 66.7 41.0 108.0 18.2 59.8 0.0 120.6 15.4 120.3 11.4 85.8 8.9 54.6 41.9 $13.7 0.0 79.0 $5.9 248.4 69.3 $9.7 318.5 50.7 $8.8 346.1 37.1 1983 1982 1981 1980 1979

(1) For the years 1983 and prior; Disney Stock no par value, 75,000 shares Auth., 33,729 billion shares issued & 34,509 outstanding Disney Strategy (A) 9 Olin Business School

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WALT DISNEY COMPANY FINANCIAL INFORMATION
CONSOLIDATED STATEMENT OF CASH FLOWS (in millions of dollars) Year Ended September 30 Cash Provided by Operations Net Income Income from continuing operations before taxes and cumulative effect of accounting changes Income taxes (paid) refunded, net Charges to Income Not Requiring Cash Outlays Depreciation Amortization of Film & Television Costs Other Changes in Receivables Merchandise Inventories Prepaid Expenses and Other Assets Deferred Income Taxes Total Cash Provided by Operations Investing Activities Film & Television Costs Theme Parks, Resorts, and Other Property Other Total Cash Used by Investing Activities Financing Activities Borrowings Reduction of Borrowings Repurchases of Common Stock Dividends Other Total Cash (Used) Provided by Financing Cash Provided by Discontinued Operations Increase (Decrease) in Cash Cash Balance, Beginning of Year Cash Balance, End of Year 4.4 13.7 $18.1 -240.6 254.3 $13.6 -74.0 328.3 $254.3 -26.6 354.9 $328.3 80.6 274.3 $354.9 41.1 102.8 $151.7 39.7 48.2 $277.1 32.4 32.1 $142.4 23.3 11.6 $11.7 15.5 8.5 $10.0 137.5 -99.9 205.0 110.0 0.0 n/a 83.8 333.7 26.0 -$443.5 52.3 614.4 85.9 -$752.8 55.4 333.4 5.9 -$394.7 68.4 149.7 1.6 -$219.7 -$91.5 44.4 56.6 -25.9 -11.2 13.3 -2.6 $337.4 1.1 -6.9 15.2 4.6 $274.8 $210.8 $204.7 $182.8 -18.6 -5.1 24.1 -13.6 -12.8 23.8 90.2 65.6 15.5 41.9 64.9 9.9 38.9 52.2 9.4 43.1 33.9 6.5 40.4 5.3 2.4 $163.4 29.0 $178.8 -34.6 $216.9 -106.1 $247.9 -121.8 $ 113.8 1983 1982 1981 1980 1979

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WALT DISNEY COMPANY FINANCIAL INFORMATION
KEY FINANCIAL RATIOS ROE (NI/total shareholder’s equity) (ROE was 22% in ’65, 16% in ’55, and 7% in ’45) ROA (NI/total assets) Operating Margin (operating rev. – sga/total rev) Debt to Equity (total debt/total shareholders equity) Total Debt to Assets (Current & L/T Borrowings/Total Assets) Divisional Operating Margins (div. op. inc./div. rev.) Filmed Entertainment Theme Parks & Resorts Consumer Products Divisional Contributions to Total Revenue (div. rev./total rev) Filmed Entertainment Theme Parks & Resorts Consumer Products 12.7% 78.9% 8.5% 19.6% 70.4% 9.9% 19.6% 68.8% 11.5% 17.6% 70.4% 12.0% 20.5% 68.6% 10.9% -20.2% 19.1% 51.4% 9.7% 18.3% 46.6% 17.6% 18.7% 43.6% 30.2% 19.8% 50.1% 26.4% 23.7% 55.6% 3.9% 14.1% 24.7% 14.5% 4.8% 16.4% 24.7% 15.0% 7.5% 18.8% 9.4% 6.8% 10.0% 23.0% 2.8% 2.3% 9.5% 25.4% 1.9% 1.6% 1983 6.7% 1982 7.9% 1981 10.4% 1980 12.6% 1979 11.8% 1975 10% 1970 10%

Divisional Contribution to Operating Income (Div. Op. Inc./Total Segment Op. Inc.) Filmed Entertainment Theme Parks & Resorts Consumer Products -15.2% 89.4% 25.8% 9.8% 66.3% 23.9% 16.1% 60.3% 23.6% 21.1% 55.1% 23.8% 19.5% 58.6% 21.8%

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Exhibit 2
WALT DISNEY PRODUCTIONS, JUNE 1984 Other Financial Date (in thousands)
Entertainment and Recreation Walt Disney World Admission and rides Merchandise sales Food sales Lodging Disneyland Admissions and rides Participant fees, Walt Disney Travel Co. Tokyo Disneyland royalties and other Total revenues Theme Park Attendance Walt Disney World Disneyland Total Motion Pictures Theatrical Domestic Foreign Television Worldwide Home-Video & NonTheatrical Worldwide Total revenues Consumer Products and Other

1983 $278,320 172,324 178,791 98,105 102,619 45,669

1982 $153,504 121,410 121,329 81,427 98,273 44,481

1981 $139,326 121,465 114,951 70,110 92,065 44,920

1980 $130,144 116,187 106,404 61,731 87,066 41,703

1979 $121,276 101,856 95,203 54,043 75,758 35,865

83,044 $1,031,202 22,712 9,980 32,692

28,502 $725,610 12,560 10,421 22,981

29,282 $691,811 13,221 11,343 24,564

28,005 $643,380 13,783 11,522 25,305

26,843 $571,079 13,792 10,760 24,552

$38,635 43,825 27,992 55,006 $165,458 $45,429 20,006 30,666 10,269 4,327

$55,408 64,525 44,420 37,749 $202,102 $35,912 20,821 26,884 15,468 3,453

$54,624 76,279 43,672 22,231 $196,806 $30,555 24,658 27,358 21,148 12,704

$63,350 78,314 19,736 10,565 $171,965 $29,631 22,284 23,432 21,908 1,905

$49,594 57,228 27,903 9,273 $144,058 $24,787 18,985 16,129 19,967 1,768

Character merchandising Publications Records and music publishing Educational media Other

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Exhibit 3
Comparable Valuations For Disney’s Businesses 1984
source: Analysts’ comments in June 4, 1984, Forbes Magazine article, “Who Will Win the Keys to Disney’s Magic Kingdom?”

Shares Disney Outstanding = 34.5 million Disney annual royalty revenue from Tokyo Disney Land = $20 million

Business Line

Transaction/Source Taft Broadcasting Theme Parks purchase

Date

Valuation Multiple/Worth

Comments Disney may deserve an additional premium due to the brand name Some still see this as one of the most unexploited assets in Disney Tremendous library and recent signs of turnaround may erase poor performance

Theme Parks

1984

2 times Revenues

Consumer Products Forbes/Analyst Comments

1984

3-3.5 times Rev.

Film, Studio & Cable Forbes/Analyst Comments Hotels Land Forbes/Analyst Comments Forbes/Analyst Comments

1984 1984 1984

2-2.5 times Rev. $ 300 million $ 300 million

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Exhibit 4 Disney Share Price Performance Compared to the S&P 500 January 1970 – August 1984

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Exhibit 5 Walt Disney Share Price and Trading Volume During the Hostile Takeover January 1984 – August 1984

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Exhibit 5 Continued:

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Exhibit 6 WALT DISNEY PRODUCTIONS, JUNE 1984 Estimated Probable Minimum Library Values as of 1983 Value ($ millions) 500 275 950 Approximate No. of Titles 1,800 features 25 animated, 125 live action, 500 shorts 4,600 features (2,200 MGM), 1,310 shorts, 1,080 cartoons 700 features 1,400 features 3,000 features, 12,500 TV episodes 1,600 features

Columbia Pictures Disney MGM/UA Entertainment

Paramount Twentieth Century Fox Universal Warner Bros. Total

275 350 700 450 3,450

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