GLOBAL FINANCING AND THE INITIAL BUSINESS PLAN

The consulting team had hired a major global investment banking concern to review the plan, identify the problems and develop a restructuring plan.
GLOBAL FINANCING AND THE INITIAL BUSINESS PLAN
The firm's senior managing director spoke: "Financing and the assumptions of the initial business plan is the area that has created the greatest problems for the park; its restructuring is most critical to the ability of the venture to continue operating and become profitable and as a result , is the most important problem that needed to be addressed short team."

Hit presentation identified the following problem areas :-

1) The initial plan was highly optimistic and extraordinarily complex. There was little room for error in this plan which was based on over leveraged financial scenarios that depended on the office pakrs and hotels surrounding the park to pay off, rather than the park itself.
In addition to the plan being highly leveraged, significant cost over runs in the construction of the park further increased the start-up costs, making the achievement of the promised returns even more unlikely.
Disney itself had imposed on arbitrary deadline of March 31 to develop a refinancing package with the creditor banks, further putting pressure on developing a credible and viable restructuring plan. A separate team was already at work to develop such a restructuring plan.
2) The initial plan was presented as financially low risk; shares were largely sold to individual investors with little tolerance for risk.
The plan was constructed in the mid-1980s, a period of high-flying free market financing in the United states. European investors did not understand these kinds of deals and propositions.
3) A severe European recession, a drop in the French real state market and revaluation of European currencies against the French franc severely undercut all of the assumptions on which the plan was depending in order to succeed.
4) euro Disney management faced with the problem of trying to achieve an unrealistic plan had made serious errors in pricing.

GLOBAL FINANCING AND THE INITIAL BUSINESS PLAN

Among the mistakes were charging $42.25/day for admission to the park compared with a $30 daily fee for the U.S. and Tokyo parks. Hotel prices were set similarly with a room costing $340, equivalent to a top hotel room in Paris. Inside the park, food prices were also priced too high.

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