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Author: esxokm Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 49467  
Subject: Idea on Marvel/Pixar Date: 3/17/2013 12:23 AM
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I must confess, I don't know a lot about the particular kind of equity I'm about to mention. In fact, I've always thought it was kind of an odd, almost unreal stock that didn't make any sense on paper.

But I was thinking about go.com the other day, the tracking stock that was issued to take advantage of Disney's web operations. We all obviously know how well that turned out.

Yet, it occurred to me that many people wish Marvel and Pixar were still on their own and still had their own equity currency.

So, I asked myself, what about tracking stocks? Would it be theoretically possible for Disney to sell shares of Marvel and Pixar into the public, thus raising money to pay off debt? And then, if the shares fell in the future, buy them back cheap? Or, if the shares became more expensive in the future, use it as a currency to fund the films?

Again, I'm not up on the science of the tracking stock. I'm not sure I would want these other little equities floating around Disney. Still, I thought it would be interesting if, by luck, a tracking stock were issued and then it essentially devalued itself over time. Then again, what about setting up more of a trust -- I think that's the term I want -- that might pay out dividends but is designed to depreciate over time?

I just find it fascinating that the market has so many ways of extracting value and raising money and was wondering what the group might think of tracking stocks of Marvel and Pixar (maybe even Lucasfilm?) to generate money that could further offset what was paid for them in the first place. Perhaps there are other kinds of offerings that could be made instead of a tracking stock.
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Author: Fuskie Big funky green star, 20000 posts Top Favorite Fools Old School Fool Ticker Guide SC1 Red Winner of the 2010 Rule Breakers Challenge Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 48487 of 49467
Subject: Re: Idea on Marvel/Pixar Date: 3/17/2013 2:07 AM
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Do you see Disney's debt as a problem?

Fuskie
Who doesn't have much problem with debt if it is used for growth purposes and there is cash flow to service it...

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Author: esxokm Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 48488 of 49467
Subject: Re: Idea on Marvel/Pixar Date: 3/17/2013 3:24 AM
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Generally speaking, I'd rather see debt levels lower. I know what you're getting at, but this raises another question: should Disney borrow money and pay investors a special dividend? Debt is generally cheap these days, so why not do that? Although it wouldn't affect capital investment in a necessarily beneficial manner, it would reward shareholders -- including management -- for investing in the company and working at the company. You could argue that Disney's future cash flows can service that as well.

While debt is not a problem now, what if it becomes so in the future? The environment might change where we might have to borrow more money in the future at higher rates. What if, for some unknown reason, we had to borrow the exact same amount of debt we have now at higher rates? In the end, it's simply a case of flexibility. I agree that the debt now isn't adversely affecting the company, but I'd have to assume lower is always better.

The net interest expense according to the Q4 report I just checked at the investors site is $369 million. Here's the comment attached to it:

**The increase in net interest expense for the year was primarily due to higher average debt balances, partially offset by lower effective interest rates.**

Not a big deal. But, $369 million represents a lot of potential content that could have been made. It also represents a potentially higher dividend.

Personally, I would feel better if the company had a much lower level of debt. Yet I agree that debt is part of business. I definitely would love the company to identify some assets that could be sold off to get rid of debt. Not sure what that would be at this point, although I recently mentioned the Touchstone library in another post.

I guess I'm just trying to maximize opportunities and shareholder value.

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Author: Fuskie Big funky green star, 20000 posts Top Favorite Fools Old School Fool Ticker Guide SC1 Red Winner of the 2010 Rule Breakers Challenge Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 48490 of 49467
Subject: Re: Idea on Marvel/Pixar Date: 3/17/2013 4:06 AM
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Disney's growth hasn't maximized shareholder value enough? I'm never in favor of using debt to finance a dividend. I am only in favor of dividends when there is no better purpose to which excess cash can be put. And if a company is out of ideas on that front, we are in big trouble.

Fuskie
Who expects continued revenue and net income growth for those who are patient enough to allow investments in capital infrastructure to pay down debt as projects like the DCA renovation, Hong Kong Disney, the Fantasyland expansion, and our slate of movies this year to pay off...

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Author: MoeBruin Big gold star, 5000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 48493 of 49467
Subject: Re: Idea on Marvel/Pixar Date: 3/18/2013 2:43 PM
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I am totally with Fuskie on this one.

With the cost of debt so low and the high return Disney seems to be getting recently on its use of the dept with DCA being the most recent example why wouldn't you want Disney using debt. As long as the return on investment is higher then the interest rates they are paying we win.

Now if I am managing Disney's finances I do want to be prepared for the impact of increases in the cost of debt so as long as they are prepared to handle that we are good. And things like issuing stock are things they can do if debt rates get high.

Same goes for dividends. If they can grow the profits at a higher rate then dividends gets me go for it. When a company is mature and not in a growth stage bring in the dividends. But right now the Disney theme parks in particular seem like a gold mind so why not keep investing and expanding in the goal mind especially when the model says that you can raise prices much higher then the investments and gain more people.

Disneyland in CA is now $87 a day for one park and $125 for both parks and based on attendence there is still plenty of room to raise the admission costs further.

Moe

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Author: Fuskie Big funky green star, 20000 posts Top Favorite Fools Old School Fool Ticker Guide SC1 Red Winner of the 2010 Rule Breakers Challenge Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 48494 of 49467
Subject: Re: Idea on Marvel/Pixar Date: 3/18/2013 2:55 PM
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I think it could be argued that Disney is perpetually a growth company in one area or another. That's how Walt always saw it and that's what guests and owners have come to expect.

Fuskie
Who would be worried if management ever announced that they were done and going to sit back and enjoy operations for a while...

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