Gloomy news for possible Henson suitor, Disney

[Chad Kermit]

A Mouse divided as theme parks drag
Boffo B.O. frame can't halt stock slide

By CARL DIORIO


There were more dark clouds over the Magic Kingdom on Monday.
Disney stock slumped yet again -- to a new eight-year low -- after the Mouse House was put on alert by Moody's Investor Service that its debt rating was being eyed for possible downgrade. The announcement, which follows a similar warning Friday by Standard & Poor's, potentially affects $15 billion in Mouse debt.

Moves reflect spiking concerns over sluggish attendance at the Disneyland and Disney World theme parks, especially by international visitors wary about post-Sept. 11 security concerns. And, coinciding with a boffo weekend for "Signs" from Disney's Touchstone movie division, they also indicate the diminished impact of rosy theatrical results on the Mouse's bottom line. "Signs" generated Touchstone's biggest three-day box office ever with its $60.1 million bow.

'Ongoing concerns'

"The review is prompted by Moody's ongoing concerns about the outlook for the company's theme park operations, uncertainty about viewer and advertiser share momentum at its ABC networks, and the company's high debt burden vs. operating and free cash flow," Moody's said.

Action affects Burbank conglom's current long-term debt rating -- an investment-grade A3 -- as well as A2 ratings at subsids Disney Enterprises and ABC.

"Moody's believes that the external environment, which includes waning consumer confidence and ongoing geopolitical uncertainty, will continue to challenge (Disney)," the ratings service said.

Slow to shed debt

Meanwhile, Mouse has moved slower than expected to reduce debt accumulated through its acquisition of cabler Fox Family earlier this year, Moody's said.

"In addition, Moody's remains concerned that given ABC's lagging audience share, it may experience greater negative volatility should a 'double-dip' advertising recession take hold," the ratings service added.

A ratings downgrade could increase Disney's future borrowing costs through higher interest expenses.

"It's just yet another piece of negative news," Sanders Morris Harris analyst David Miller said.

Stock continues slide

On Thursday, Disney posted a 31% profit decline in its June quarter amid downturns in theme park, TV and film operations. A related forecast of lower profit in the current quarter helped send Disney shares 11% lower Friday.

The stock shed another 6% Monday, closing down $1.04 at $14.27 amid active turnover. Mouse shares have tumbled 31% this year.

S&P placed Disney on CreditWatch for possible downgrade to a single-A corporate credit rating, saying conditions make it unlikely the conglom can dramatically reduce its high debt by the end of the fiscal year.

"Operations remain under pressure from the weak U.S. economy, and parks and resorts are affected by the global economy," S&P said. "In addition, the broadcasting and theme park businesses, which are key incremental cash-flow generators, also are suffering from non-economic pressures. Travel-related businesses will need increased confidence in security, and the ABC television network faces a major task to rebuild its primetime ratings."

 

[MuppetQuilter]

Thanks for sharing this info.

Interesting.... guess we'll have to wait and see how Disney responds and what stock holders do next.

 

[sstVideo]

My broker told me to dump disney at least 9 months ago...or put it on a long term hold. ABC will cycle back up eventually and once the economy brightens the theme park business will pick up. They are the number one Family friendlyl brand in the US, and probably worldwide.

What does this mean for Henson? When bond ratings go down it means that money is going to cost disney more to borrow. It means that the total bid for Henson has got to be even lower because that $ would come from issuing bonds.

Unfortunately, though more activity by Henson is good in the short run for us fans, it is bad for Henson in the long term because the value of the company will become higher. With a worldwide recesssion and ad slump, nobody will be breaking down the doors to spend that kind of money. And EM.TV's creditors and shareholders won't stand for them to hold on to Henson much longer.

Also, a company under so much debt can not afford to put lots of money into revitalizing the Henson company. So...not so good news about Disney does not bode well for tje JHC's future.

 

[Luke]

but then saying that $300 Million, which would be a top price for JHC right now, is pretty much nothing compared to what Disney already owe so it doesn't make THAT much of a difference, although what you say is totally correct.

Also right about EMTV holding onto JHC - as well as not being able to find a bidder prepared to pay a high price they are also holding on so that they can take in whatever revenues they can from the new products and shows during the 25th anniversary but that isn't going to save the company from sale. They pretty much have to lose JHC by mid-next year at the very latest but it's a rocky road along the way, either they might not be able to get a good price for Henson (which doesn't neccasarily mean they'll sell at a low one) or if EMTV was to go into liquidation, and the bank couldn't find a buyer prepared to pay a high price then they could insist the company is split up and sold off in parts to try and attain the price they need. That would pretty much be disaster scenario though, and thankfully there's a way to go before then.

 

[beaker]

>>>>then they could insist the company is split up and sold off in parts to try and attain the price they need. That would pretty much be disaster scenario though, and thankfully there's a way to go before then<<<

um, if it came to that somehow I envision scenes remenescanet of Brave Heart. I think us fans have been though a long enough period of uncertainty for that kind of thing.

 

[Luke]

Originally posted by beaker
um, if it came to that somehow I envision scenes remenescanet of Brave Heart. I think us fans have been though a long enough period of uncertainty for that kind of thing.

Well um Cory - i hate to tell you this but unless you had $300 Million there's not much you could do. Kirch pretty much went down a few months ago - EMTV could more than easily be next - they've been on the edge for ages.

A liquidator HAS to get the asking price for the sale of a company. If the easiest way they can do that is to sell 'Creature Shop' off to Dreamworks, the Muppet character's to 'Disney', the video library and rights to 'News Corp', and Jim Henson Pictures to 'Warner Bros' then thats exactly what they'll do and they won't care about all the job losses at JHC either. I'm sure they'd look to sell the whole company first though and i'm not trying to worry anyone but this really is a big possibility.

 

[sstVideo]

You guys seem to have forgotten that they have already split up and sold off one of the most profitable parts of the Jim Henson Company...the 50% share in all of the revenues generated by the Sesame Street Muppets. Those classic characters are no longer controlled by EM.TV.

And yes....they did it once, so there is no reason to think that they won't do it again. The Studio real estate in California is the first thing that comes to mind. There is really no need to own a studio when renting studio space by production is incredibly cheaper. There is a glut of studio space, both in LA and elsewhere.

 

[Luke]

Originally posted by sstVideo
The Studio real estate in California is the first thing that comes to mind. There is really no need to own a studio when renting studio space by production is incredibly cheaper. There is a glut of studio space, both in LA and elsewhere.

The studio space doesn't belong to JHC or EMTV. They rent it independantly from the Henson Kids.

 

[beaker]

>>>A liquidator HAS to get the asking price for the sale of a company. If the easiest way they can do that is to sell 'Creature Shop' off to Dreamworks, the Muppet character's to 'Disney', the video library and rights to 'News Corp', and Jim Henson Pictures to 'Warner Bros' then thats exactly what they'll do and they won't care about all the job losses at JHC either. I'm sure they'd look to sell the whole company first though and i'm not trying to worry anyone but this really is a big possibility.<<<

hmm, that doesnt sound as clataclysmic as I had thought:
creature shop...whesn the last time they did something actually JHC like?

WB: Hey, they put out the matrix series, so ya cant go wrong there.

The big Disney...well everyone thinks the Muppets are going there anyways.

 

[Luke]

Hmmmmm yeah it's not THAT cataclysmic but it would provide some complications of major proportions :-

Whoever bought the Muppet characters could quite easily have them do anything they liked because all the restrictions would be gone (as far as i know) - commercials for foot odor, diapers, appear in videos with wild rock bands (oops).

In the above scenario the Henson family would probably purchase the characters so that nobody could do this. Not such a good idea though because they wouldn't have the deals, resources or people to actually make TV shows and movies meaning theoretically the Muppets would just waste away into oblivion or only make occasional appearances, unless of course they sold onto another buyer who they were happy with.

The Muppets could never refer to anything they had ever done before (like TMS, MFS, TMM, MTI - none of it). This is because another company (likely a big TV distributor who wanted to make money out of selling the shows) would own the rights to all that and the actual Muppets would be seperate from the deal.

The puppeteers and the whole staff of the Henson company would have been put out of work with the split so they'd need to employ the puppeteers again freelance - in that time they could have got other jobs.

So anyway - it wouldn't all be a walk in the woods but things could be got around.