Consolidating Walt Disney

Ch. 4: – From Consolidation to Failure

^{Jennifer Begakis}

In 1958, Walt Disney Productions (WDP) began a seven-year corporate consolidation of Disneyland. Between 1958 and 1965, the publicly traded animation and film company acquired Walt Disney’s two startup companies, Disneyland Inc. and Disney Imagineering, which designed and built Walt Disney’s Disneyland Park.

Disneyland opened in 1955, one decade before WDP acquired the theme park. At this time, WDP owned an approximately 34% stake in the park’s management company, Disneyland Inc. Additionally, WDP functioned as the parent owner of Walt Disney’s startup and autonomous subsidiary, WED Enterprises.

Following WDP’s 1952 divestment which transferred ownership of the rights to Walt Disney’s name and likeness from the Hollywood film company to Walt Disney, Walt Disney pursued business independently.

Though WDP functioned as the parent owner, WED was a separate legal entity. WDP separated the firm from Walt Disney and Walt Disney’s independent business during their divestiture. Critically, the firm wanted to protect shareholders from the risk of Walt Disney’s ambitious idea to build a theme park. The pursuits of WDP’s subsidiary business. In other words, they were limiting the downside risk of Walt Disney’s latest business ventures by limiting their liability and responsibility to creditors or investors funding Walt Disney’s subsidiaries’ business. Nevertheless, WDP’s parent company ownership of WED Enterprises and stake in Disneyland Inc. facilitated the acquisition of Walt Disney’s theme park business.

Soon after Disneyland opened its gate to the public in the summer of 1955, executives at WDP pursued a plan to begin reworking the firm’s joint tenancy of Disneyland’s operating company, Disneyland Inc. In 1958, WDP agreed to a deal with ABC to buy the company’s share of Disneyland Inc. While negotiating with the American Broadcast Company, WDP also purchased shares from the remaining joint tenant, Western Printing and Lithographing.

WDP’s move to consolidate ownership of the joint tenancy arrangement of Disneyland Inc.[1] occurred when WED Enterprises (more commonly known as Disney Imagineering by 1957) was involved with several architectural alterations, new building construction, and changes to existing attractions inside Disneyland.

Additionally, the rearranging of the terms of joint tenancy occurred in conjunction with a management overhaul at Disneyland Inc. First, C.V. Wood was fired from his position as General Manager of Disneyland and Vice President of Disneyland Inc.[2]

The trouble between Walt Disney and Wood, Disneyland’s first hire and first fire, ended less smoothly than the owners of Disneyland Inc. hoped. Rather than stay and continue to the end of his contract, Wood left shortly after hearing the official word of his firing. Though Wood and Walt never got along and personal conflicts got in the way of several management decisions, which caused operational issues for the theme park itself, Disneyland lost—rather abruptly—its first General Manager.

After Wood left, Walt Disney gained control of Disneyland’s management. Disney also regained majority control of Disneyland Inc., albeit with help from his brother Roy Disney and his brother’s company, WDP, acquiring Disneyland Inc.

The following year, WDP purchased additional stock in Disneyland Inc., then approximately a 68% owner of the jointly held company.

In 1960, ABC sold its 35% stock in Disneyland to WDP and WDP’s subsidiary company, Disneyland Inc. The president of ABC-Paramount reported the Disneyland stock was sold at $1,500 a share with Disneyland Inc., paying $2,002,500 in cash and WDP exchanging $5,497,500 in payable notes over five years. [3]

The sale transferred ABC’s stock in Disneyland Inc. to WDP for cash, and the terms of the deal were critical for WDP’s next consolidation move. Because, even under new parent company ownership, Disneyland Inc. would remain responsible for its old business, including its debt to creditors.

Cash payments to ABC were part of WDP’s strategy to limit the cost of purchasing Disneyland Inc. WDP’s deal with ABC bled Disneyland Inc., making the company’s eventual purchase of Disneyland Inc. a reportable loss. Despite the immediate hit to revenue, at the end of the five-year payment period, shares of WDP stock rose from 94 cents to $1.56. The price of shares in 1965 continued to grow alongside revenue increases from film sales, royalty payments, merchandising, and theme park business.

By 1965, concerning Disneyland’s profit, management, all operations, and stock, WDP now owned Walt Disney’s first theme park. The public company’s acquisition of Disneyland Inc. launched a new cornerstone of WDP business—Disney Parks and Resorts.

The decision to bleed Disneyland Inc.’s coffers of cash in the deal with ABC was ultimately an attempt to limit the firm’s tax burden and consolidate ownership of Disneyland Inc. at a lower cost. Still, it was part of a company strategy to limit expenses more generally regarding acquiring Disneyland and to begin seamlessly integrating the promotions film and television business throughout Disneyland. Because while the animation and film company negotiated with ABC, WDP also gained a majority share of their subsidiary, WED Enterprises. Buying Walt Disney’s Imagineering startup proved more complicated for WDP than arranging with ABC for a buyout to restructure the existing joint tenancy of Disneyland Inc. The Imagineers delayed the final deal to buy WED Enterprises and move Imagineering in-house at the WDP studio to negotiate terms of their employment, including royalties and the rights to various in-park designs and new ride technologies.

For the Disney Imagineers, WDP ownership gave new freedom and greater leverage inside Disneyland. Now that WDP owned Walt Disney’s theme park, Disney’s Imagineers faced fewer management disputes over attraction designs, operational costs, and maintenance. Unlike working under the operating terms, C.V. Wood set, Walt Disney worked closely with the new executives at Disneyland Inc. Earlier management disputes no longer obstructed WED Enterprise inside the theme park. With Walt Disney’s greater creative control and the Disney Imagineers’ restored technical authority at the theme park, WED Enterprises drew up plans to bargain with WDP (Disneyland’s owner) for the rights to own their pieces of Disney’s theme park.

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Excerpt from Chapter Four: From Consolidation to Failure

• [1] The president of ABC-Paramount reported the Disneyland stock was sold at $1,500 a share with Disneyland Inc., paying $2,002,500 in cash and WDP exchanging $5,497,500 in payable notes over a five-year period. A subsidiary of ABC will continue to operate its food concessions inside Disneyland. “Stake in Disneyland Sold Back by ABC in $7,500,000 Deal.” New York Times. Jul 08, 1960., Burton Crane. “STOCKS TURN FIRM AS VOLUME RISES: ADVANCE IN STEELS SETS THE TONE — COMBINED INDEX CLIMBS 2.24 POINTS 643 ISSUES UP, 378 OFF RUMORS ARE RIFE OF EASING FOR MARGIN RULES — UNITE WHELAN LEADS ACTIVITY STOCKS TURN FIRM AS VOLUME RISES.” New York Times. Jul 08, 1960.
• [2] Billboard. “Wood Resigns at Disneyland.” February 4, 1956.
• [3] The uptick in revenue comes after WDP consolidated a majority stake in the subsidiary, WED, and the jointly owned Disneyland Inc. WDP previously offset its total earnings by breaking up business into different autonomous subsidiary companies..Ibid. Mitchell Gordon. Peter and Dorothy Bart. “As Told and Sold by Disney: By Disney by Disney by Disney.” New York Times, May 09, 1965.

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