Reasons Emerge for the Liquidation of Compact Video

In a Dec. 3 Securities and Exchange Commission filing, Compact Video, the diversified Burbank video production firm controlled by closemouthed New York investor Ronald O. Perelman, said it planned to liquidate its assets. Perelman was mum on the reasons for a garage sale, but he has been busy ever since.

Two weeks ago, Perelman accepted an offer for Compact Video’s Brooks Drug store chain, based in Pawtucket, R.I. Hook-SupeRx, a Cincinnati drug store chain, agreed to give Compact Video $81.5 million in cash for Brooks’ 360 stores in the Northeast. Brooks accounted for 73%, or $114 million, of Compact Video’s revenue in 1986.

Brooks originally belonged to one of Perelman’s other companies before he sold it to Compact Video just 15 months ago for $91.2 million. “It had been far from the best-managed company in the drug industry,” said Daniel Offen, an analyst with Gruntal & Co. in New York. Because Hook-SupeRx is paying cash, Offen thinks Perelman will break even on the deal.

Then last week Compact Video sold three of its entertainment divisions for $43 million in cash and $7 million in notes. Two of the divisions offer post-production services to the film and video industry, and the other makes audio equipment for studios and mobile broadcasting facilities.

The buyer was SIR Acquisition Corp., a New York holding company established Dec. 11 to acquire some of Compact Video’s holdings. SIR is owned by Daniel Sullivan, another New York investor. William Laverty, director of acquisitions for Sullivan, said Sullivan thinks he can turn a profit where Perelman couldn’t. “The plans are to expand the operations to what extent we are able,” he said.

Sullivan’s only other known holding is the Rocky Mountain division of Lucky Stores, which he acquired in February for $50 million.

Compact Video is now down to two subsidiaries: VidAmerica, headquartered in New York, which has an extensive video library; and Four Star International in Los Angeles, which owns roughly 600 low-budget movies and distributes television shows.

VidAmerica and Four Star also may be for sale. One analyst, who asked not to be named, said Compact will have $153 million in cash and $105 million in debt after it finalizes the sales already announced. That breaks down to a per share value of roughly $7. As analyst Offen pointed out, “It’s worth more than the $2.50 its selling at.”

Although for the first six months ended June 30, Compact Video reported a loss of $8.4 million, or $1.28 cents a share, on revenue of $211 million, the company’s losses are not big enough to force it out of business.

Perelman’s motivation behind all these moves, one analyst said, was to turn Compact Video into a shell company to make acquisitions. Compact Video has $10 million to $12 million in tax credits, plus a growing cash position.

After the Oct. 19 stock market crash, Offen believes that Perelman and his executives “probably came to the conclusion that with the market decline, there are a lot of good values around, and their money could be more sensibly employed than it was.”

Perelman controls Compact Video through his investment firm, McAndrews and Forbes, which is Compact Video’s largest stockholder with just over 40% of its shares.

Compact Video officials declined comment, and Perelman would not return phone calls.

Perelman, 44, is an ace paper shuffler who has leveraged a $1.9-million investment in a jewelry store operation in 1978 into a multibillion dollar sales empire that includes the Revlon Group in New York, which he recently took private.

Perelman first got interested in Compact Video in 1983, when it bought a post-production subsidiary in which McAndrews & Forbes owned a stake. As a result, McAndrews & Forbes received 640,000 shares in Compact Video.

Over the next four years, McAndrews & Forbes increased its stake in Compact Video, and then Pereleman started merging unprofitable operations from his other businesses into Compact Video.

By June, 1987, Compact Video had gone from a video company with $29 million in sales to a mini-conglomerate with six subsidiaries and more than $400 million in sales. “Compact was a company made up of other companies that Perelman never wanted,” said an analyst.

Bigger definitely wasn’t better for shareholders. Under Pereleman’s direction the company has lost approximately $10 million since 1983. Meanwhile, in the last three years, the price of Compact Video’s stock has slid from $8.37 to just $2.25 Monday.

Nevertheless, McAndrew & Forbes recently bought an additional 100,000 shares of Compact Video. Perelman”obviously feels it is worth a lot more than that price,” Offen said.

Perelman is a mystery that analysts enjoy trying to second-guess. Some other corporate raiders are loud-mouthed, self-promoters, but even though Perelman is married to a gossip reporter, he rarely talks to the press.

Compact Video is Perelman’s last publicly held investment. He has taken all of the rest of his acquisitions private.

Two years ago, Perelman bought a controlling interest in Pantry Pride, a Florida-based chain of supermarkets. He quickly sold off the company’s only business--grocery stores--and then used Pantry Pride’s $400 million of tax credits to shelter the income of Revlon.