Carolco Outlines Plan to Put DEG Back Into Films

De Laurentiis Entertainment Group would emerge from bankruptcy proceedings and resume film production under a plan outlined Thursday by its prospective new owner, Carolco Pictures.

Carolco, a Los Angeles firm that produced the Rambo movies starring Sylvester Stallone, said it would own 70% of a reorganized DEG under an agreement it expects to sign today with the company. Although DEG’s creditors have consented to the agreement, it still requires bankruptcy court approval.

The deal would provide for Carolco to get the ownership interest without paying any cash, said Carolco Chief Executive Peter M. Hoffman. Instead, it would receive the 70% stake in exchange for arranging its complex plan for reviving DEG, which wound up in bankruptcy court after a string of unsuccessful movies made under the former management team headed by Dino De Laurentiis.

The reorganized company would shed the De Laurentiis name for a new one yet to be selected and would make pictures in DEG’s North Carolina studio, the Carolco chief executive said. New stock in DEG would be traded publicly, and the company would operate as a subsidiary of Carolco, which also is a public company.

Three years after transplanted Italian film maker Dino De Laurentiis founded DEG and got public financing arranged by Wall Street financiers, the company sought refuge from creditors last August by filing a Chapter 11 bankruptcy proceeding in federal court in Los Angeles. The filing listed $199.7 million in liabilities and $163 million in assets.

Suitors Dropped Out

De Laurentiis himself is not expected to receive anything in the bankruptcy case for his controlling stock interest in DEG. Hoffman said creditors and other holders of unsecured debt would get the bulk of the money.

Along the road to the reorganization plan, a number of potential buyers for DEG assets had dickered for DEG assets but had dropped out contention. Among them was Giancarlo Parretti, who controls Pathe Communications, formerly Cannon Group, and is a personal friend of Dino De Laurentiis.

Carolco’s agreement came after a last-minute competing offer last week by New York investors, the Roth-Stern Group. Both bidders made a presentation Tuesday to a committee of DEG creditors set up by the bankruptcy court.

Hoffman conceded that creditors were successful in using the competition to extract additional concessions from Carolco, though “not on the dollar amount.”

DEG assets that would be kept by the new owner, besides the 32-acre North Carolina facility, are more than $10 million in promissory notes from DEG and affiliates, a 140-title film library of Italian language films and about 100 “development projects” in the form of movie and television scripts and properties, some dating back to assets that DEG acquired from Embassy Pictures in 1985.

Hoffman said a major attraction of the reorganized company would be its accumulated net operating losses of more than $50 million, which could be converted into tax benefits.

If the agreement is signed, Hoffman said, the reorganization plan would be filed in about 30 days and the matter completed in within six months.

Money for Creditors

Asked if the new firm would retain Stephen R. Greenwald, who succeeded Dino De Laurentiis as DEG chairman and chief executive in February, 1988, Hoffman said that matter had not been discussed.

DEG’s creditors would receive about $25 million under the plan. Of that amount, he said, $18.5 million would be cash from the reorganized DEG, including $10 million from the anticipated sale of its domestic film library to Paravision Communications, a unit of the French cosmetics giant L’Oreal.

The remaining $8.5 million in cash from DEG would come from a new loan to the reorganized firm from a creditor, the Dutch branch of French banking giant Credit Lyonnais. Carolco is to guarantee the payment of the loan, Hoffman said. The bank also is Carolco’s lender.

DEG creditors would divide $4 million to $6 million of the old firm’s receivables and receive stock in the reorganized company. Further, Hoffman said, Carolco will give creditors rights allowing them to swap their shares in the new company for $6 million of Carolco common stock.

Although creditors would receive 51% of its new stock, the reorganized firm would issue preferred stock or debt securities to Carolco that would increase that company’s equity to 70% from 49%, Hoffman said. He estimated the face amount of that stock or debt security at $6 million to $8 million.