Bronfmans to Sell Cineplex Stake to Drabinsky Group
Canada’s wealthy Bronfman family has decided to sell its significant holdings in Cineplex Odeon Corp., heightening a debate about the movie-theater concern’s future and financial strength.
Cineplex announced simultaneously, however, that the Bronfmans’ longtime stake will be purchased by a group led by Cineplex Chairman Garth H. Drabinsky and Vice Chairman Myron I. Gottlieb, boosting their stake to 38% of the common shares. In effect, Cineplex management will gain an upper hand over MCA Inc., which has a 33% stake of the voting shares and controls just 5 of the 16 seats on the company’s board.
Less than three weeks ago, Cineplex pulled out of a business deal with MCA by selling its half-interest in the Universal Studios theme park under construction in Florida. But the withdrawal was widely interpreted as a move by Cineplex to reduce its hefty debt of $664 million.
“MCA’s relationship with Cineplex remains a strong one with active cooperation at the top levels of both companies,” said MCA Vice President Charles S. Paul, who is also a Cineplex director.
Cineplex stock has traded heavily since the March 22 disclosure of the Florida pullout and the release of the company’s financial results for 1988, which indicated a fourth-quarter loss of $11.8 million.
“The cash flow doesn’t sustain the company,” said one Hollywood executive who has watched Cineplex for years. Drabinsky “sells assets at the end of the year in order to make their financials look good,” the executive said, echoing a common criticism of the Toronto-based firm.
In the closing months of 1988, Cineplex sold real estate and 49% of its Film House post-production subsidiary for a gain of nearly $48 million. For the year ended Dec. 31, 1988, the company reported $44 million in pretax income.
One securities analyst who asked not to be identified contends that Cineplex would have reported a year-end pretax loss of nearly $26 million in its continuing operations if adjustments are made for the asset sales, writedowns and certain operating expenses that have been capitalized.
Those results appear to have sparked some of the stock’s active trading, and other professional investors have been anxious to see if the Bronfmans would retain their stake. The price of Cineplex shares Monday declined 12.5 cents to $13.75 on the New York Stock Exchange, with 483,600 shares changing hands.
The Bronfman involvement dates back to 1983, when Cineplex was struggling to pay its rent at a Toronto shopping mall then controlled by Bronfman interests. Since that time, a group led by Charles R. Bronfman has maintained a stake of about 30% in the company’s common shares and as recently as last fall loaned money to Drabinsky and Gottlieb to buy more shares.
According to the company’s statement, the Bronfmans will sell nearly 7.3 million shares at $17.50 (Canadian), or about $106.9 million in U.S. dollars. The investor group--which includes nine firms or individuals in addition to Drabinsky and Gottlieb--is granting its vote to the two Cineplex executives until April 30, 1991.
In a prepared statement, the new investors said they do not currently expect to add to their holdings, but they noted that the purchases were made in part “to consolidate shareholdings influencing the de facto control.”
No Bronfman family spokesman was available for comment in Montreal, and Drabinsky and Gottlieb did not return a reporter’s call.