Euro Disney shares leapt on Wednesday after the French theme park operator clinched a long-awaited deal to restructure its debt, but analysts say big challenges loom for Chairman Andre Lacroix.
Euro Disney's volatile stock soared 12.5 percent at the open and was up 6.25 percent at 0.34 euros by 1504 GMT after news late on Tuesday that it had won the backing of all its creditors for a modified plan to restructure its 2.2 billion euro ($2.7 billion) debt -- saving the firm from collapse.
"It's a relief since it gets them out of a not negligible risk of bankruptcy, but it is only a breather," one Paris-based analyst said.
"It's just a band-aid," another analyst added. "A new liquidity problem will arise in three years' time. This plan does not guarantee Euro Disney will survive 10 more years."
Though Euro Disney, operator of the most visited tourist attraction in Europe, has won a reprieve, it still has to improve its operating performance by sharply lifting numbers of visitors, on whom revenues and profits depend.
Lacroix, a former Burger King executive, took the helm as Euro Disney languished amid rising costs and slumping travel, and analysts say he has about two years to prove he can work some Disney magic of his own.
"He has had one year, which can't be considered a reference since all he could do was manage day-to-day operations," a source close to the company said, referring to the debt talks that have hamstrung the firm for the past 14 months.
"Everything will depend on the next one-and-a-half to two years," he said, pointing to revolving-door chairmen such as Philippe Bourguignon, Guy Pellison and Jay Rasulo, each of whom lasted in the post two to three years.
"The challenge for Lacroix is clearly to give a target for visitor numbers and investment over two years, to elaborate a marketing plan that is really very sharp and to make sure the second park takes off with very targeted promotions," he added.
But he was not optimistic that Tuesday's agreement would provide any easy solutions. "The agreement they have signed still doesn't give them much room to manoeuvre. It doesn't give them a huge increase in their marketing budget," Pellison said.
Last year Euro Disney, which opened the Walt Disney Studios on the doorstep of the Magic Kingdom in spring 2002, spent a hefty 11 percent of its total sales on marketing and promotion and is expected to keep that figure steady for 2004/05.
But one analyst said Euro Disney needs to broaden its appeal by reducing its promotional stress on the Disney characters.
The terms of its restructuring plan include a 250 million euro capital increase, a 150 million euro credit line from 39-percent shareholder The Walt Disney Company, and partial waivers on royalties owed to its parent for the use of Mickey Mouse and other characters.
To get all its creditors on board, Euro Disney had to agree to pay an additional 200 basis points in interest to funds that own 450 million euros of its debt and to advance repayment of some of its senior debt to 2012 from 2014.
The plan was thrashed out by state-owned bank CDC, which owns nearly half of Euro Disney's debt, alongside Credit Agricole and BNP Paribas. But agreement was delayed by hedge funds such as Black Diamond and Cerberus Capital Management, which held out for better terms.
Euro Disney's predicament arose when The Walt Disney Studios failed to lift visitor numbers to the 16-17 million it had hoped to attract. Instead they have stalled around 12.4 million.
That, plus a downturn in tourism in the wake of the Sept. 11, 2001 attacks on the United States, meant it was unable to generate the cash needed to service its debt.
Lacroix has said the rescue will allow the firm to lay on "exciting new rides and attractions".
