Investors Will Pay $48 Million for RKO : Confidential Memo Details Management Group’s Purchase Deal

A management group at RKO Pictures and its backers, Alan J. Hirschfield and Robert Fell, is to pay about $48 million to buy the company from its parent, GenCorp, according to confidential data circulated to potential private investors.

The purchase deal was announced last week, but not its price tag or other financial details. The seller has been shedding its television stations, reducing its own need for the programming represented by RKO.

A present value of $44 million to $50 million is estimated on the old 750-title RKO film library alone--even though major distribution rights to the pictures are owned by Ted Turner’s Atlanta-based broadcasting empire.

The information in memo form was prepared by New York investment banker PaineWebber Inc., which is seeking to sell $30 million of convertible preferred stock in a private placement as part of the purchase financing.

According to the document, other financing planned will include a $38-million term loan, a $14.3-million revolving credit, plus a $2.5-million equity investment by the new owners. The company seeks about $39 million above the purchase price as working capital, according to the data.

The company, which in the last several years resumed production of movies and television programs, will continue these operations and initiate new ones, according to the information.

Among other things, the document includes an anatomy of a movie library carved into a hodgepodge of rights under various owners.

It lays out various rights to the mostly pre-1955 films, largely black and white and some generally accepted as “classics.” These include “Citizen Kane,” “King Kong,” “The Hunchback of Notre Dame” and Fred Astaire’s “Top Hat.”

Besides the underlying copyrights, RKO Pictures owns a hodgepodge of distribution rights. These include rights for “certain domestic free and pay/cable television markets.”

Colorization Explored

RKO reacquired those rights last December from Marian B. Pictures and is considering reacquisition of rights held by other parties, the document said, adding:

“Additionally, the company, which owns the colorization rights to substantially all films in the RKO library, is exploring the economic, artistic and technical merits of colorization.

“With the increasing importance of ancillary media such as the home video and various television markets, the motion picture industry has found that film libraries generate stable and predictable cash flows and have come to represent sources of substantial value.”

RKO also holds standard broadcast TV rights in areas representing about 20% of domestic homes, with revisionary rights covering 14% more in the event that television stations holding rights experience a change of control.

RKO also owns worldwide remake rights and rights to domestic theatrical reissue.

Turner Broadcasting System, as a result of acquiring MGM/UA last year before selling off all but its film library, holds “perpetual standard broadcast television syndication distribution rights” to the pre-1955 films for domestic markets representing about 66% of U.S. television homes, the document states.

The data does not show the relative investment or equity interest among the buyers of RKO Pictures. However, it notes that Hirschfield and Fell would enter into consulting contracts calling for maximum reimbursement of $50,000 for their services.

Hirschfield formerly was chief executive at two major Hollywood studios, Columbia Pictures and 20th Century Fox Film Corp. Fell is president of Fell & Co., a management consulting firm specializing in the communications industries. The document said Fell & Co. “is regarded as the premiere executive search firm in the entertainment industry.”

After completion of the purchase, they will be directors on the original seven-member board but hold no executive positions, according to the PaineWebber memorandum.

Mark Seiler, who will remain as president under the new ownership, declined to comment on the financial details of the document but affirmed the data about the library. He said there will be no changes in management. The firm will maintain principal executive offices in Century City.