MCA to Buy 33% Interest in Cineplex Theater Chain

MCA said Wednesday that it has agreed to purchase nearly one-third of Cineplex Odeon, one of the largest motion picture exhibitors in North America, for $106 million in Canadian currency, or about $75 million at present exchange rates.

The deal marks MCA’s entry into the exhibition business and underscores its top executives’ determination to expand in areas related to MCA’s core business of producing and distributing movies and TV programs via its subsidiary, Universal Studios.

For Toronto-based Cineplex, the deal appears to offer financial security from an investor that is barred, under Canadian law, from increasing its voting shares to one-third or more.

Under the terms of the deal announced Wednesday, however, MCA will have the option of purchasing an additional block of non-voting shares for $106 million (Canadian) within 42 months, increasing MCA’s stake to 50%.

Cineplex said it would use some of the proceeds to buy out its 50% partner in the Plitt theater circuit, acquired just two months ago. In a telephone interview, Cineplex President and Chief Executive Garth Drabinsky said Cineplex will pay $17 million in U.S. currency to its partner, Odyssey Plitt Associates. That will represent a profit of about $8 million for that New York-based group, which includes the investment firm of Furman Selz Mager Dietz & Birney.

Founded just eight years ago, Cineplex has had a roller-coaster ride to the top ranks of its industry. The company nearly went belly-up in late 1982, Drabinsky said, when Canada’s strongest exhibitors kept Cineplex from gaining access to not just first-run but second-run movies as well.

To stave off its main lender, Cineplex sold its 14-screen Beverly Center complex in Los Angeles and challenged its Canadian competitors on antitrust grounds, eventually prevailing. During that troubled era, Cineplex also granted 20th Century Fox Film an option to acquire 7% of its stock, but Fox terminated the option in the spring of 1984. Since then, the company has gained a market value of more than $400 million, up from $30 million, Drabinsky said, adding that, “In retrospect, (former Fox owner Marvin Davis) probably made the wrong move.”

Cineplex attracted other sizable investors, however, and Drabinsky said Wednesday that a 22% stake is still held by Canada’s Bronfman family, which controls Seagram Co.

In 1984, Cineplex acquired Canadian Odeon, the second-largest circuit in Canada, and repurchased its Beverly Center theater complex from a partnership controlled by Detroit developer Alfred Taubman.

In 1985, Cineplex orchestrated the Plitt acquisition, and it reached an agreement with MCA to build a 17-screen complex on its Universal City property.

It was after the MCA deal in December, Drabinsky said, that he was “tipped off that MCA had some interest in greater involvement in the theater exhibition business,” and he broached the subject with Sidney Sheinberg, MCA’s president and chief operating officer, and MCA Chairman Lew Wasserman.

Several motion picture companies are barred by antitrust consent decrees from owning motion picture theaters, but Universal Studios, Paramount and Columbia Pictures are not among those.

Nevertheless, MCA’s investment in Cineplex will be submitted to federal antitrust agencies for review under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, according to Sheinberg.

In a telephone interview, Sheinberg affirmed MCA management’s interest in expanding beyond its core production and distribution business, which he has characterized in past interviews as “relatively mature.”

Eight months ago, MCA entered the toy business by buying a company that specializes in toys based on characters in popular movies, TV shows, games and personalities.

Under the terms of the MCA deal, Cineplex plans to expand its board to 15 seats, with four designated for MCA nominees. Drabinsky said he anticipates no change in the appointment two months ago of Norman Levy, a former vice-chairman of 20th Century Fox, as a Cineplex director.

For the nine months ended Sept. 26, 1985, Cineplex reported net income of $9.78 million on revenue of $127.46 million. Those figures do not include the Plitt operation, which Cineplex said had a net loss of about $1 million for the 12 months ended Oct. 3, 1985.

As a result of the Plitt purchase, Cineplex operates 1,100 screens in North America, making it second to General Cinema in the number of screens but first in number of locations, Drabinsky said.