Free Essay On Walt Disney Prospectus

Type of securities and measures to ensure marketability

Walt Disney Company offered to the public Global Notes. The notes were subject to a fixed interest at a rate of 4.5% payable semiannually. They were to be issued as a series of senior debt securities. Under the indenture dated September 24, 2001, Wells Fargo Bank was the trustee for the company in respect of the notes. These notes were senior unsecured obligations of the corporation and were ranked equally with all other senior unsecured obligations of the company from time to time (pari passu). They were denominated in US dollars or other foreign currencies including composite foreign currencies.
One of the approaches taken by Walt Disney to enhance marketability of the notes was the use of underwriters/investment bankers. It is difficult to sell to the public directly through the Initial Public Offering. Underwriters help in this by purchasing all the securities then reselling them to the public on behalf of the issuer. Walt Disney’s underwriters of the notes were Citigroup Global Markets Inc., Deutsche Bank Securities Inc. and J.P. Morgan Securities Inc. the underwriters agreed to purchase all the remaining notes after selling to the public. The approach was enhanced by the fact that some of the underwriters or their affiliates had offered services to the company in the past, and there was a high likelihood of providing such services in the future. The discounts proposed by underwriters also increased the marketability of the notes. They intended to offer the notes to selling group members at the Original Issue Price after deducting a concession of 0.2% of the principal amount. A discount 0.13% of the principal amount was offered to other broker-dealers.

Dollar amount of debt

The company proposed to sell notes with a total principal amount of $1,000,000,000. The debt security was to be issued in denominations of $2,000 or any other denomination more than $2,000 so long as it is a multiple of $1,000.
The amount increased from 2008 to 2010 since the maturity date of the notes was in 2013. The period between 2008 and 2010 is the initial period when investors get information on the available notes. As the underwriters place the notes for sale to the public, interested investors take some time to assess the risk involved in the security before making a decision to invest in them. The underwriters also take time before establishing the market for the notes. Therefore, the amount offered in 2008 was small but increased steadily between 2008 and 2010.
In addition, the agreement with the underwriters was that they acquire all the notes and resell to the public on account of the company. This determination is not made in the early years of the securities since underwriters give adequate time for investors to purchase the notes. Furthermore, the amount increased since the company did not redeem the notes. The company issued the notes to raise capital to finance its corporate goals. During the period between 2008 and 2010, it was too early for the company to raise adequate funds to finance the redemption of the notes. The company had to pay the 100% of the principal amount of the redeemed note plus a premium to cater for the loss of expected interest payments to the holder if it redeemed the notes.

Percentage of the sales price

Principal amount = $1,000,000,000
Original issue price = 99.026% = 0.99026 × 1,000,000,000 = $990,260,000
Proceeds to the company = $986,760,000
% Disney gets = Proceeds to DisneyOriginal Issue price × 100%
= 986,760,000990,260,000 × 100%
= 99.65%

Alternatively:

% Disney gets = 100% - % commissions and discounts
= 100 – 0.35
= 99.65%
The percentage of the sales price Disney gets increased from 2008 to 2010. This is attributed to the fact that in 2008, the market was not established while, by 2010, investors had already gotten adequate information on the company’s notes. In 2008 at the time of the IPO, notes sold to broker-dealers were considered as a distribution because the market for Disney’s notes had not developed. This implies that the agents had to employ special selling efforts to convince investors to invest in the company’s notes. However, in 2010 the market had developed hence the sales were considered as just ordinary transactions. According to the terms outlined, commissions and discounts to agents could be reviewed after the initial public offering.
In addition, the establishment of the market for Disney’s notes led to an increase in the number of agents involved in the trade. An increase in the number of agents or financial intermediaries caused a fall in the cost of selling the notes. Agents were, therefore, paid less commissions and discounts than the amounts paid at the time of the IPO (Helbæk, Lindest & McLellan, 2010).

Use of proceeds

Disney stated in the prospectus that the proceeds from the issue of the notes were to be used for general corporate purposes. These included reducing short-term debts, funding acquisitions, funding investments in the extension of credit and distributions to subsidiaries.
A study of the annual reports from 2009 to 2013 indicates a reduction in short-term indebtedness. In addition, Disney has made several acquisitions such Lucasfilm, Maker Studios, among other firms. The company therefore used the proceeds from the issue of notes for the intended purposes.

References

Helbaek, M., Lindest, S., & McLellan, B. (2010). Corporate finance. New York: McGraw-Hill.