For French investors, a Euro Disney nightmare

Mugs showing Disney figures Mickey and Minnie Mouse are displayed for sale in a gift shop at the Disneyland Paris Resort run by EuroDisney S.C.A in Marne-la-Vallee January 21, 2015. Picture taken January 21, 2015. [Photo/Agencies]

"SHAREHOLDERS NOT THE MAIN CONCERN"

The trouble at Euro Disney stems from the firm's origins and ownership structure.

Pierre-Henri Leroy, head of the independent investment advisory firm Proxinvest, says the 1987 agreement that established Euro Disney was made to benefit Disney and the French state, whose main concern was developing a depressed agricultural region east of Paris.

In this, Disney was a welcome guest. Some 55,000 jobs in the greater Paris area depend, directly or indirectly, on Euro Disney, making it the largest private employer in the Seine-et-Marne region, according to a 2012 economic study commissioned by the government. The firm has also paid 5.3 billion euros in various taxes to local and national authorities since 1992.

In return, Disney has won a foothold in Europe, a storefront for its merchandise and media properties, and prime access to 500 million consumers.

The U.S. parent company has also made money from its French adventure. Since 1992, royalty and management fees have added up to 975.69 million euros for the Walt Disney Company, according to Reuters calculations based on financial reports. Euro Disney said 285 million euros of that was not paid as of 2014, but still owed to Disney.

Add to that other Related-Party Transactions such as those for developing and building rides, other services and financial charges, and total charges reach at least 1.481 billion euros. Most of that revenue goes to other holding firms in the Netherlands, which has a tax-friendly policy for intellectual property. Disney says such services are crucial to maintain high and consistent standards at Euro Disney.

Over the same period, Euro Disney has incurred total net losses attributable to shareholders of more than 2 billion euros. As a result, it has paid no corporate taxes. Even in its profitable years, Euro Disney used "tax loss carry forwards," which allow firms that have incurred losses to avoid taxes.

The losses were almost inevitable according to Proxinvest's Leroy, who is not a Euro Disney shareholder but advised French investment banks and corporations on the stock.

"To us it was clear from the start that this was not a good investment," he said. "I would never have advised anyone to buy these shares because so much money was being taken out through transactions with Disney."

An official in former Prime Minister Jacques Chirac's government when the deal was signed said the state had imposed a shared ownership structure out of "patriotic sentiment," and had not prioritised the protection of European shareholders.

"The shareholders were not the main concern," said Christian Cardon, mayor of Trouville in northern France and former chief of staff for then Transport Minister Pierre Mehaignerie. Disney and the government "didn't look too closely at the financial setup. If there had been a purely private approach... with major private shareholders, things would have been different."