Disney seen mulling restructuring
Magic Kingdom needs jump start amid slow growth
By Brenon Daly, CBS MarketWatch
Last Update: 2:41 PM ET Jun 4, 1999 Software Report
NEW YORK (CBS.MW) -- Shares of Walt Disney Co. rose nearly 6 percent on heavy volume Friday afternoon amid speculation the entertainment giant may revamp part of its sprawling kingdom, analysts said.
"There's some buzz about some kind of a restructuring," said Banc of America Securities analyst Mark Zadell. "It wouldn't surprise me, because a low stock price can be an excuse to make some positive moves."
The entertainment giant has had tough going in recent quarters, and Banc of America projects Disney will increase sales just 3.5 percent this fiscal year vs. 6 percent the previous year. The reasons: a lack of popular home videos and sluggish sales of Disney clothing, toys and tchotchkes that make up its big merchandising arm.
Shares of Disney (DIS: news, msgs), virtually flat for 1999, gained 1 11/16 to 30 11/16. More than 8.7 million shares of the stock, which is a component of the Dow Jones Industrial Average, changed hands, vs. average daily volume of 6.7 million.
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6/4/99 12:22:44 PM ET
Tom Deegan, a spokesman for Disney, declined to comment on the stock movement or speculation on a restructuring.
However, following the company's announcement in April of fiscal second-quarter results, Disney chief executive Michael Eisner said the company is "taking a number of steps, including an across-the-board assessment of our cost structure to address the (sluggish growth.). We intend to make our businesses more efficient, increase our cash flow, and position ourselves to better capitalize on the long-term growth potential of our brands."
In the second quarter, revenue increased just 5 percent to $5.5 billion, while net operating income slipped 14 percent.
On Friday, options trading on Disney was unusually active. In a bullish indication, about 9,600 contracts of the June 30 calls traded, compared to an average of a few hundred over the recent sessions. A call option implies that a stock will rise in value. The June 30 calls added 13/16 to 1 5/16 on Friday afternoon.
Amex trader Bruce Rogoff said he heard talk that Disney would reorganize its business, but wasn't sure how much credibility to give those reports.
Similarly, Linda Bannister, analyst at Edward Jones in St Louis, said she "can't get her arms around what kind of restructuring (Disney would undertake.)"
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