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Disney was $8 million in the hole
Three films at once
Walt had approved Pinocchio, Bambi, and Fantasia at the same time, each in a completely different style, and Bank of America lent another $4.5 million. Pinocchio came out in 1940 with World War II already under way in Europe, so its international box office was nearly zero, and it lost over a million dollars.
The stock sale
With the bank unwilling to lend more, Disney sold $3.875 million of convertible preferred stock in April 1940 with a 6 percent cumulative dividend. It was technically the company's IPO, though it was sold over the counter rather than on an exchange. After fees the company raised about $3.5 million and gave up 30 percent of itself. Together with the $4.5 million from the bank, that was exactly the $8 million it needed.
That summer, Walt mentioned the offering to Henry Ford at a friendly meeting between the two business titans. Ford reportedly told him that if he sold any of it, he should have sold all of it. The preferred holders also got a seat on a real board of directors, the company's first.
Why do cumulative dividends protect investors?
A cumulative dividend carries over if the company skips a payment. The company must pay every missed dividend to preferred holders before common shareholders get anything. That makes preferred stock safer than common stock when a company is struggling. It also made the offering easier for Disney to sell in 1940.
Why did Pinocchio's foreign sales collapse?
Europe was a major market for American films, and the war closed theaters and blocked money from leaving countries. Pinocchio opened in the United States in February 1940. Its songs later won Oscars, including Best Original Song for When You Wish Upon a Star. The film earned back its cost over later reissues.
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