For French investors, a Euro Disney nightmare

WAITING TO PROFIT

The U.S. parent firm uses a corporate structure known as the "societe en commandite par actions," or SCA. This set-up, used by a handful of firms in France, allows Disney to manage Euro Disney via a 100-percent-owned subsidiary. It charges what Leroy and others call "enormous" fees for Related-Party Transactions including royalties, management, development, maintenance and other services.

These services are not only expensive, but sometimes inefficient, shareholders say. Maintenance and upgrades cannot be performed on most Disney-themed rides, hotels and restaurants, without using Disney-controlled businesses. Shareholder Le Duc cited the example of a hotel inside Disneyland Paris. Staff there were unable to open windows because they had lost their only keys; replacements had to be ordered from the United States.

All the fees add up to around 10 percent of Euro Disney's revenue. And that's set to climb even further. As part of Euro Disney's turnaround plans, one of those charges, the management fee, will rise to 6 percent on Oct. 1, 2018 from 1 percent now. Disney says this will restore it to originally planned levels.

Euro Disney Chief Financial Officer Stead said Euro Disney shareholders were aware of its fees and charges which had "always been disclosed."

It is not uncommon for parent firms to charge their subsidiaries such fees. Disney says its royalty and management fees are priced at market rates and less than what's charged by some other sellers of intellectual property. But some theme parks pay much less. Merlin Entertainments, which operates the Legoland park near London, for instance, paid Lego fees and royalties of around 2 percent in 2011 and 2012.

Euro Disney shareholders complain that they have held on to their stock because of repeated assurances from management that it will become profitable in the medium-term. In 2012, CEO Philippe Gas said Euro Disney was "setting the stage for sustained long-term profitability."

When Supervisory board chief Virginie Calmels and CEO Tom Wolber presented the rescue plans in Paris this month - Calmels said Euro Disney will finally turn a profit in 2019 - guests hectored them with shouting and accusations.