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Saul Steinberg, Disney's Worst Enemy - The 1984 Disney Hostile Takeover Attempt Part 2 - YouTube
Channel: Midway to Main Street
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The 1980’s was an era known for a lot of
things.
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The Brat Pack, time travelers, hair bands,
and cabbage patch dolls.
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In the world of Wall Street, however, it was
known for something else: corporate raiding.
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Bud: I just found out about the garage sale down at Bluestar. Why?
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Gordon: Well you're walking around blind without a cane pal. A fool and his money are lucky enough to get
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together in the first place.
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Bud: But why do you need to wreck this company?
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Gordon: BECAUSE IT'S WRECK-ABLE, ALRIGHT!?
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Corporate Raiding, as a general concept, is
when an individual or company purchases a
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significant number of shares of another company.
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The more shares that person or company owns,
the more voting power they have within the
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company they’re raiding.
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In some cases they use that voting power to
advocate for changes at that company that’ll
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result in higher short term profits, which
in turn raises the stock price, which allows
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them to sell their stake and turn a profit
themselves.
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In other cases they want to completely take
over the company, usually to the same effect.
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Among the more prolific corporate raiders
of the time was a man named Saul Steinberg.
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Steinberg’s flavor of corporate raiding
involved takeovers, or at the very least the
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perception and threat of a takeover.
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The Brooklynite businessman first made a name
for himself in the late ‘60’s, when he
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started a venture called the Ideal Leasing
Company, which leased IBM computers to clients.
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He was able to use that company, later renamed
to Leasco Data Processing Equipment Corporation,
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perhaps the most boring company name ever,
to sell public shares and use the money to
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acquire a much larger insurance firm called
the Reliance Insurance Company.
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In all honesty, while he became known for
that Reliance acquisition, it would be one
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of the few companies he would actually take
over.
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For the most part he thrived by making it
look like he was about to take over a company.
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US Security and Exchange Commission rules
state that at a certain point you have to
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submit a filing, announcing your intentions
when it comes to large stock purchases.
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So Steinberg would buy, buy, and buy some
more.
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It would start to paint the picture that he
was intending to eventually purchase controlling
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interest in that target company.
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The target company, understandably, usually
doesn’t want to be taken over.
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A takeover means a potential change in leadership,
a potential change in how they do business,
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and in some cases a potential risk of the
company just being broken apart and sold off
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in smaller pieces to other sellers.
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The target company would have a number of
tools at their disposal to try and ward off
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the takeover, but most of them were bad news.
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One popular method that Steinberg had thrived
off of was offering to sell the shares he
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had purchased back to the company, but at
a premium price.
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It was called greenmail and in the 1970’s
and 80’s Saul Steinberg had successfully
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pulled it off over a dozen times.
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Gordon: Buddy, what's the fair price for that stock?
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Bud: The breakup value is higher. It's worth $80.
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Gordon: So what do you way to $72?
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Larry: You're a two-bit pirate and greenmailer, nothing more.
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Gordon: My mail is the same color as yours is pal.
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Generally caving to greenmail works, since
the corporate raider is usually looking to
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turn a quick profit.
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As it turns out, accepting more money to just
go away is a lot less work than actually taking
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over a company and running it.
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The problem, for the target company, is three-fold.
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For one, it involves paying off the corporate
raider, which is a blow to their finances.
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Usually a company targeted for a takeover
isn’t expecting it, and so they’re typically
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not ready to buy large pieces of their company
back.
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Secondly, it often angers their other shareholders.
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Those other shareholders see the corporate
raider get a premium price for the stock,
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but they don’t.
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It can sometimes actually result in those
shareholders suing the company over it.
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Lastly, paying greenmail to a corporate raider
sends a message to the public, and more importantly
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other corporate raiders, that greenmail works.
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Sure, it might make this one specific problem
go away, but it only increases the chances
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of another corporate raider coming around
and trying the same exact thing.
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In early 1984, Saul Steinberg saw the vulnerable
position that Disney was in.
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At $49, down from a 52-week high of $84 a
share, their stock wasn’t doing so hot.
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However, they were still a company with a
lot of valuable assets.
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The potential was there, it just wasn’t
being exploited.
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So Steinberg began to buy up Disney stock.
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Now at this point Steinberg had already earned
his reputation as a corporate raider.
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So by simply buying those initial shares,
Disney knew what the intentions were.
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There was no uncertainty.
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They knew they were facing trouble.
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They had to act, and they had to act quickly.
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Walt Disney Productions sought out the services
of Morgan Stanley & Co, to explore their options
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for warding off Steinberg.
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Of course they could pay the greenmail,
however Morgan Stanley advised
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against it
for all of the reasons previously mentioned.
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Their other strategies included a leveraged
buyout, selling pieces of themselves, a white
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knight, and pricey acquisitions.
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A leveraged buyout, in this instance, is when
a company essentially buys enough shares of
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themselves to have a controlling stake, or
buys all of the shares to take the company
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private again.
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To pay for such an expensive purchase, the company leverages parts of themselves as collateral for a loan.
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So for instance Disney might have been able
to leverage the theme parks.
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This is risky, because while it may successfully
block raiders from trying to take over, it
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weighs down the company with significant debt.
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Furthermore, it weighs them down with debt
at a time where their financials were stagnant
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enough to prompt the takeover attempt to begin
with.
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Alternatively, Disney could just sell parts
of its assets as a means of making themselves
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less of an appealing target.
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For instance, they could sell off the theme
parks or the animation studio.
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For obvious reasons, this is the least appealing
method.
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It might scare away a raider, but it would
also likely scare away plenty of other investors.
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It would also stand to hurt the business in
the long term.
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After all, they weren't looking to get rid of those assets to begin with.
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Finding a white knight, in the context of
a takeover, means finding an investor or company
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with benevolent intentions who would be willing
to acquire the company, or enough stake in
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the company that together with management
they’d be able to prevent the raider from
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gaining a controlling stake.
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It, too, is not very appealing, as it still
results in the company either being taken
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over or being held to the will of an outside
party.
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Maybe that white knight is looking to help
today, but it doesn’t mean they’ll still
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be looking to help tomorrow.
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Lastly, there were acquisitions.
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It might seem odd for a company being targeted for a takeover to, themselves, take over another company.
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However the idea is that by acquiring a smaller
company with an all stock purchase, it would
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dilute the shares of that company and, in
effect, reduce the percentage of the company
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that the raider owned.
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If it was done once or twice, it might dilute
the raider’s shares enough to dissuade them
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from continuing with the attempt.
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After all, this was all business, and at the
end of the day what mattered most for raiders
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was that the prices were right.
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Once a takeover attempt proved too costly
for them, they’d be more likely to give
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up and sell their shares.
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Gordon: You win a few, you lose a few, but you keep on fighting.
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-and if you need a friend, get a dog.
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The problem with this strategy is that it
involves buying one or more companies.
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That’s not cheap, and again this is happening
at a time where they're already in a financial
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rough patch.
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Not to mention if the companies purchased
didn’t seem like they were purchased for
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the right reasons, it could prompt trouble
from shareholders who would see the acquisitions
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as a result of poor management.
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So here’s Disney, faced with the threat
of a takeover.
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They have multiple options at their disposal,
but none of them are really great.
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But, that was just the reality of the situation.
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Over a decade of stagnation had brought them
to this very moment.
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This was a battle for survival.
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It wasn’t going to be pretty.
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Paying greenmail was out of the question.
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A white knight would be nice, but probably
hard to come by.
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Selling assets was perhaps a last resort option.
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And a leveraged buyout wasn’t on the table for
Disney themselves, but interestingly enough
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somebody else was considering a leveraged buyout.
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While Roy E Disney had left his position at
the studio in 1977, he remained on the board
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during the years following.
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But with what he considered the continued
degradation of his uncle and father’s company,
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he felt like it was time to act.
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Roy realized that if he was going to act independently
to try and save Disney, he’d have to avoid
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any conflicts of interest, and that meant
resigning from the Disney board.
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So on March 8th, 1984, that’s exactly what
he did.
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Once he left, he began to explore the possibility
of a buyout of Walt Disney Productions.
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His own company, Shamrock Holdings, hired
an independent firm to run a study on what
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it would take for him to beat Steinberg to
the punch and buy Walt Disney Productions himself.
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It turned out that it would cost Roy over
two billion dollars to make the deal happen.
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Roy, while wealthy, did not have two billion
dollars to spare.
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To go through with the plan would mean finding
financial backers, and that would involve
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carving up the company to pay for it.
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This was 1984, so by this point Disney World
was just 13 years old and Disneyland was 29
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years old.
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The studio, however, was over 60 years old.
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To Roy, the real heart of the company was
the film and animation branch.
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So with that in mind, the leveraged buyout
was considered with the idea that it would
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be the theme parks that would be potentially
sold off to pay for the acquisition.
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Roy had to consider if it was worth breaking
up the company just to save it.
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While the takeover attempt was at the forefront
of every Disney executive’s mind and the
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options were being considered, they were still
Walt Disney Productions.
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They still had to operate day to day as a
company.
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It was a critical event that could alter the
future of the company, but they still had
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to plan for the future in the event it wouldn’t.
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One such way they looked to the future was
by looking for help in ways to develop and
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make use of the massive amounts of land Walt
had purchased in secret for Walt Disney World.
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Perhaps making use of that land could help
their bottom line and their stock price, aiding
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in the effort to keep Steinberg away.
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In April of 1984, Disney
reached out to a Floridian real estate developer
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by the name of the Arvida Corporation to explore
the idea of hiring them as a consultant.
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Consulting wasn’t really Arvida’s thing,
but then again this was Disney and it was
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a lot of Floridian land, so they were open
to the idea.
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However just as quickly as those discussions
began, one of the owners of Arvida came back
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with a better idea.
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An idea that might help them in their fight
against Saul Steinberg.
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Why hire Arvida, when you can just buy Arvida?
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