Lorimar Looks Into Combining With Warner : Analysts Say Deal May Shut Costly Movie Unit
Lorimar Telepictures, laden with debt despite its success as a leading television programmer, announced Monday that it is exploring the “desirability” of a business combination with Warner Communications.
Spokesmen for both companies characterized the discussions as “preliminary” in nature, but the news was greeted enthusiastically on Wall Street. Lorimar closed at $15 a share, up $2.50, on a volume of nearly 3.5 million shares, establishing a record for the company.
Several analysts immediately jumped to the conclusion that Warner would shut down Lorimar’s costly movie production business and capitalize on its strong television operation.
But other industry sources speculated that Lorimar might try to maintain some autonomy, even as a movie company. Just eight days ago, the company named its film unit’s head, Bernie Brillstein, to the company’s board and its executive committee.
Several industry executives warned that strong egos or price differences could kill the deal, even if discussions advance to a more serious stage.
Monday’s announcement was prompted by extraordinary activity in Lorimar’s stock last Friday, when more than 1.65 million Lorimar shares changed hands, making it the second most-active issue on the American Stock Exchange.
Largest Supplier
Despite the stock activity, a Lorimar Telepictures official was initially reported on Friday as saying the company wasn’t planning any announcements that would affect the price of its stock.
Kenneth Lerer, an outside corporate relations adviser retained by Lorimar, refused Monday to say when the talks with Warner actually began. “The official at Lorimar said: ‘No announcement has been scheduled.’ Obviously there was a misunderstanding between the person at Lorimar and the person at Dow Jones,” Lerer said, alluding to the widely read news service that distributed the report on Friday. Lerer noted that Lorimar hastened to put out its release before the market opened Monday.
Lorimar is the largest supplier of prime-time television series to the three major networks and a leader in first-run syndication (shows such as “She’s the Sheriff” and “People’s Court,” produced specifically for initial airing on independent and network-affiliated television stations).
First Film in Release
Nevertheless, the Culver City-based company has posted losses for the past six quarters and has been selling off a number of assets, including advertising agencies, magazines and television stations.
Analysts have blamed Lorimar’s troubles on Chairman and Chief Executive Merv Adelson’s determination to become a significant producer and distributor of motion pictures, despite nearly $74 million in writeoffs in the company’s movie operations over the past five years. Even as other independents have retrenched or retreated from a glutted film market, Lorimar has plowed ahead with its plan to distribute its own movies in the United States, distributing three films to date.
The company has enthusiastically supported the new film-making team led by Brillstein, which has its first production, “Action Jackson” now in release. To date, the film has grossed $16 million in box-office receipts, but outsiders still regard the movie-making unit as a serious drain.
As of Dec. 31, 1987, Lorimar had less than $44 million available for borrowing under a $350-million revolving credit facility, and $13 million in cash.
But last month, Lorimar received $100 million in cash for the sale of its advertising agencies, which included Bozell, Jacobs, Kenyon & Eckhardt. The proceeds are “being used to pay down debt,” said Susan E. Binford, one of the company’s outside communications consultants.
And although Lorimar’s tangible net worth has dropped below the amount required by its bank agreements, Binford said: “The waivers have been extended and we expect to consummate a new credit agreement by the end of the month.” (Tangible net worth is shareholders’ equity less goodwill and certain other items.)
Warner, in contrast, has fully recovered from its losses in the video game and home computer industry in the early 1980s. As of Sept. 30, 1987, Warner reported $454 million in cash and marketable securities and an untapped $250-million credit line with a group of banks. Warner had less total debt ($501 million) than Lorimar ($580 million as of Dec. 31, 1987), and Warner’s $1.3-billion in shareholders’ equity dwarfed that of Lorimar ($295 million).
On Monday, Warner closed at $32.75 a share, up 37.5 cents, on the New York Stock Exchange, with 801,300 shares changing hands.
Although Warner is one of the entertainment industry’s leaders in motion pictures, recorded music and cable television, it has not been one of the strongest television production companies and has never entered the first-run syndication field. For that reason, analysts applauded the idea of a business combination at a price ranging from $14 to $18 per Lorimar share.
At Monday’s stock price of $15 a share, the cost of acquiring Lorimar would be about $680 million.
At least one analyst noted that the combination might dilute the holdings of Warner’s largest shareholder, Chris-Craft Industries, which has had stormy relations with Warner management in recent years.
Chris-Craft Chairman Herbert J. Siegel could not be reached for comment. As of last May, the date of Warner’s most recent proxy, Chris-Craft controlled 17.4% of Warner’s voting shares.
