Tele-Communications Plans to Buy UA Communications and Sell Theaters to Tri-Star

In a deal that would put Hollywood’s newest studio into the movie theater business, cable-TV giant Tele-Communications Inc. said Monday that it has agreed to acquire 51% of United Artists Communications for $390 million in cash and notes and will offer to buy the rest on similar terms.

If the deal is completed, Tele-Communications said it has agreed to sell the 1,100-screen theater chain owned by San Francisco-based UA Communications to Tri-Star Pictures. Terms of that proposed deal were not disclosed, but one source said Tri-Star is expected to pay between $450 million and $500 million for the theaters.

Several industry executives said the deal would be a coup for Tri-Star, founded just four years ago by CBS Inc., Time Inc. and Columbia Pictures Industries. The New York-based company has been anxious to prove itself a “major” company in the movie industry, which traditionally has accorded that status to only six or seven companies, such as Paramount Pictures and Universal.

Will Keep Cable Operations

“It’s going to make all the other major motion picture companies totally crazy,” one investment banker predicted. “Everyone’s going to have to go to them for (access to) screens.”

Denver-based Tele-Communications said it intends to retain the cable-TV operations of UA Communications, which rank as the nation’s 12th largest in number of basic-service subscribers. Tele-Communications is already the nation’s biggest cable operator.

The sale accelerates the rush by motion picture distributors into the exhibition business, as movie theater ownership is called in the industry. In the past year, four other motion picture distributors (Paramount, Columbia Pictures, Cannon Group and Universal’s parent, MCA) have acquired or invested in exhibition companies.

Founded in 1926 as United Artists Theatre Circuit, the company adopted its present name four years ago. It is not related to United Artists Corp., the Beverly Hills-based motion picture production and distribution company controlled by financier Kirk Kerkorian.

In a prepared release, Tele-Communications said it has agreed to buy substantially all of the UA Communications stock controlled by the Marshall and Robert Naify families for $140 million in cash and $250 million in notes, which are convertible into 14 million shares of Tele-Communications Class A common stock.

At those prices, Tele-Communications would have to pay about $770 million and assume about $540 million in debt for the entire company. A source close to the company said it has not decided whether to offer cash, notes or stock for the remaining 49%.

Paul Kagan, a Carmel-based industry analyst, valued the deal at about $18.66 per share for the UA Communications shares held by the Naify brothers. Kagan said he believes that the company is worth about $23 a share but explained that the price differential can be realized in the private market value of the Tele-Communications stock that the Naify families will receive.

In over-the-counter trading, UA Communications stock closed Monday at $19.50 a share.

“The Tele-Communications stock has a private market value of probably $40 a share,” Kagan said, but the stock has certain restrictions placed on it and is being accorded a value of just $18 per share.

The deal is advantageous for the Naify brothers, Kagan said, because they can avoid certain tax problems by structuring the deal this way.

“It’s a real smart deal for Tele-Communications,” the analyst continued, because Denver-based TCI could probably sell the UA cable properties for about $196 million more than it is paying.

Kagan said he will be anxious to learn whether Tele-Communications offers the remaining shareholders a package of notes, debt or cash worth $18.66, or consideration closer to the $23 value that he attaches to the company.

The Naify family has controlled UA Communications for decades. Marshall and Robert Naify, 65 and 63, respectively, are the sons of company founder Mike Naify. In addition to movie theaters and cable TV, the company controls Todd-AO Corp., best known for its movie sound studio in Los Angeles.

About 57% of the theaters that Tri-Star would acquire are located in California, Texas and New York, although UA Communications has been expanding in Florida.

In Los Angeles and Orange counties, UA Communications owns 110 screens, including the historic Egyptian in Hollywood and the Coronet in Westwood.

UNITED ARTISTS COMMUNICATIONS AT A GLANCE Operates third-largest chain of movie theaters in the United States, with 1,093 screens. Also owns cable TV systems nationwide. About 63% of revenues and 57% of profits came from theaters in most recent fiscal year.

26 wks ended Year ended Aug. 31 In millions Feb. 27 1985 1984 1983 Revenues $249 $476 $406 $330 Net income 3.8 14.9 15.8 17.7

Assets: $730 million Shares outstanding: 20.5 million 12-mo. price range (OTC): $8.87 1/2 - $21.75 Monday’s close: $19.50

TELE-COMMUNICATIONS AT A GLANCE Nation’s largest operator of cable-TV systems, serving almost 4 million subscribers in 43 states. Last December, it and four other companies agreed to acquire Group W Cable for $1.75 billion.

Year ended Dec. 31 In millions 1985 1983 1984 Revenues $577.3 $449.4 $347 Net income 10.1 17.4 20.5

Assets: $1.75 billion Employees: 4,716 Shares Outstanding: 96.1 million 12.-mo. price range (OTC): $22.75 - $57.00 Monday’s close: $23.87 1/2