Pierre-Henri Leroy, the Proxinvest chairman, spoke recently on the French BFM radio following the announcement of a third and significant financial restructuring of the listed Euro Disney partnership , this after 1994 and 2004, while its stock is now orth a 300 times the IPO value…
The operator of Disneyland Paris, Europe’s leading tourist destination, with 14 million visitors but nearly a million less than the 2013-2014 fiscal year, is, once again, in need of equity for about one billion euros since the company ows now € 1.7 billion to the Disney group. The mother company is the general partner of the partnership (SCA), the single lender but also the dominant shareholder with 39.1% of the stock. The consolidated net loss of around 110-120 million euros, according to Les Echos, after a 78 million loss for 2012-2013 points to one thing: the French structure, under-capitalized from the start saw its equity siphoned each year by the Disney group for an average amount of about 70 million euros of annual excessive transfers.
One must accept the legitimacy of Disney intellectual property rights and its superb brand . This very profitable film laboratory created and still creates great movies, original attractions and multiple accessories. But the fact remains that the Euro Disney SCA was plundered from the start and never had the chance to redress the balance.
This case is also the shame of the Paris since only small shareholders have borne the brunt of all these transfers out of the French listed company and they are expected tu further pay for these losses by diluting the little they have left. The stock which was the earlier regrouped at one new share for 100 old shares for, is now at the three hundredth of its historical IPO value.
The bad is that EuroDisney SCA as listed company has never really respected the rights of shareholders allowing to force US Shareholder Partner to settle for less. Acting for the third time as the lifeguard of Euro Disney the American shareholder actually keeps digging the grave of minority shareholders of Euro Disney by imposing far too heavy operating constraints.
What is worse is that the members of the Supervisory Board and the auditors have, in our opinion helped to conceal the massive financial transfers, especially by not ensuring their mention in the annual special report of the auditors. This occurred for us in violation of Article L226-10, which clearly states that « the provisions of Articles L. 225-38 to L. 225-43 apply to agreements arranged directly or indirectly between the company and one of its managers, one of the members of its supervisory board, one of its shareholders holding a fraction of the voting rights greater than 10% or, in the case of a corporate shareholder being the controlling company within the meaning of Article L. 233-3. Similarly, these provisions apply to agreements in which one of them has an indirect interest. They also apply to agreements concluded between a corporation and a company if one of the managers or one of the members of the supervisory board of the company is the owner, general partner, manager, director, general manager, board member or member of the supervisory board of the company. «
As for 2013, the company paid 110 million euros for licensing, development fees and compensation transfers to its parent company in addition to 53 million in financial expenses … not a word on these payements appears in the special auditors report subject to shareholders approval.
How is it possible that a reputed audit firm such as PricewaterhouseCoopers, receiving € 870 000 per year by the company, accepted to settle for a classification of these substantial amounts as « entered into on normal operating agreements « ?
How can one be so cynical to mention only as continuing agreements between Euro Disney and The Walt Disney Company : the « annual compensation of managers equal to EUR 25,000 payable in one installment at the end of each fiscal year. «
What possibly demonstrate the indifference of the Euro Disney directors and auditors for their information and supervision duty, is the fact that the parent companyw, hich owns nearly 40% of shares, recipient of this above mentioned little fee in addition to plus many substantial payments, illegally, once again participated in the vote this year 2014 what, in our view, invalidating all these related party transactions. Article L. 225-40 of the Act clearly states that « the beneficiary do not take part in the vote and its shares are not taken into account for the calculation of the quorum and the majority. «
Such case helps divert French capital investors for generations from the equity investments. It is urgent or greater confidence in the Paris stock market to reassure investors about their control rights .
What did the COB and then the AMF to better protect small investors when you consider that only small players were the naive Mickeys of this Disney parade? Should we not ban public company offering by governance structures as SCA or limited partnership by shares ? The recent Albaba IPO demonstrates that market regulators remain lax and fail to protect investors against the abuses of such partnerships.
What can minority shareholders do when the French Parliament dilutes via the Florange Bill their shareholders control rights through double voting rights and the ability to play with the capital during a public offering?
October 7, 2014
