Cannon Group, mired in debt and a Securities and Exchange Commission investigation, sold most of its British film library on Friday for nearly $85 million in cash.
The sum fell $40 million short, however, of the lowest price forecast seven weeks ago by Cannon when it first announced plans to sell the Screen Entertainment Library (formerly Thorn/EMI) for $125 million to $175 million.
The buyer, as previously announced, is newly formed Weintraub Entertainment Group of Los Angeles, which said the 2,000-title film and newsreel library will vault the company to the rank of a major film distributor.
The sale occurred on the same day Cannon was obligated to pay $2.2 million in interest to certain bond holders. The payment was made "like a clock," Cannon President and Chief Executive Yoram Globus said in a telephone interview Friday.
"Cannon is in difficult times, there is no question about it," Globus said. "But with the team and the family of Cannon who worked on it very hard, I believe that we will come out of the problems with the pictures we have in the can."
Doubts About Long Term
Lisbeth R. Barron, a research vice president at Balis Zorn Gerard Inc. in New York, said: "Obviously they can make their interest payments . . . for the next six months." But Barron and other analysts expressed concern about Cannon's long-term prospects as it sells off assets but continues to face massive debt. By Barron's estimate, the company owes nearly $130 million to banks due by year-end and has an additional $440 million in long-term debt.
"I think the financial crisis at Cannon continues," said Gordon Crawford, a senior vice president at Capital Guardian Research Co. in Los Angeles. "There was a financial crisis when they thought they were going to get $125 million to $175 million."
Cannon's price dropped 75 cents in active trading Friday on the New York Stock Exchange, closing at $5.375. More than 1.02 million shares changed hands.
Globus declined to say just how much Cannon currently owes its lenders, because the company has not yet filed an annual report with the Securities and Exchange Commission. Previously, the company said it would file the report by the end of April.
Los Angeles-based Cannon launched a special audit of its books last fall, under pressure of an SEC investigation into the way Cannon has accounted for its film costs in amortizing pictures. Cannon said the SEC later widened its probe into the firm's financial public disclosures since 1983.
Globus said Friday that the filing of an annual report has been delayed by "positive discussions--with whom I cannot (say). There is a delay of a few days."
$12 Million-Plus Received
The Cannon president acknowledged that the company received more than $12 million ("much more") last month from a Warner Communications subsidiary in exchange for certain international video rights.
The company met its obligation to pay $11.7 million in interest to other bond holders on April 15, Globus said.
Among its other immediate debts, Cannon also must pay about $400,000 to Australian businessman Alan Bond this month, and the company owes between $6 million and $7 million to film maker Dino De Laurentiis, according to the Cannon president.
As part of the sale of the film library, both sides agreed to post escrow. Weintraub agreed to place 625,000 shares of its stock in an escrow account, which Cannon will receive if it delivers all of the assets it has agreed to convey. Weintraub's stock, valued at $7 per share, would be worth nearly $4.4 million, but would represent less than 1% of Weintraub's voting stock, Weintraub said.
Chairman Jerry Weintraub said, however, that the sale agreement requires Cannon to place $5 million in an escrow account "as security for performance of certain representations and warranties by Cannon."
Cannon purchased the library a year ago as part of a $270-million acquisition from Bond, the Australian businessman. At the time of its last filing with the SEC, for the quarter ended Sept. 27 of last year, the library was valued at $144.8 million on Cannon's balance sheet.