Brokerage Rescinds Support for Cannon Stock

An influential Wall Street firm this week withdrew its long-running recommendation of the stock of Cannon Group, the motion picture company plagued by losses and a Securities and Exchange Commission investigation.

The firm, Furman Selz Mager Dietz & Birney, is particularly influential in entertainment company stocks and has been recommending Cannon for more than two years. In an unusual move, the firm faulted its own past analysis of the stock, and said Cannon has been removed from its recommended list “after a multiyear round trip of which we are not proud.”

Cannon’s stock closed Thursday at $4.50, down 50 cents, on the New York Stock Exchange. In the past year, its price has ranged from $45.50 to $4.125.

Despite the report, Furman Selz continues to serve as one of Cannon’s investment bankers, Cannon President and Chief Executive Yoram Globus said Thursday, insisting that there are “no hard feelings.”

The report “shows you that they are independent,” Globus said in a brief telephone interview. “I hope that the future will prove they are wrong.”

Globus declined to discuss the company’s situation in detail, citing the SEC inquiry into the company’s financial disclosures since 1983. But he said the company hoped the inquiry would be concluded shortly, and said Cannon expects to file its annual report to the SEC “by next week, like we agreed.”

The Cannon president confirmed press reports that Susan Beazley, the company’s chief financial officer for the past five months, has left the company. Globus said the decision was reached “by mutual agreement,” effective May 22, and that a successor will be announced shortly.

The Furman Selz report, written by securities analyst Alan S. Gould, estimated that Cannon might post operating losses of $25 million to $50 million for the first six months of 1987. The company has said its first-quarter results will be delayed until the end of June.

Although Cannon released 32 movies in the past year, it had “no major success,” the analyst wrote. “Negative costs (were) fully covered, as they have been at Cannon for years,” but the films garnered “so paltry a box office that print, advertising and marketing costs were not recovered and resulted in losses.

“And one key aspect we failed to focus on in this regard is that every major movie company that suffered through extended poor periods in the past changed its studio management, while Cannon continues with the same team--and the same optimism.”

Furman Selz said it does consider Cannon’s bonds “an attractive speculation,” because Cannon may need to purchase bonds in the open market to “enhance its equity” and because bondholders would be likely to “have the upper hand in any sort of reorganization.”

Gould concluded his four-page report by saying: “Regardless of the underlying asset value, the company remains in a liquidity crunch which demands further asset sale, a debt restructuring or both.”