Drabinsky May Try a Buyout of Cineplex : Putting Chain ‘In Play’ Runs Risk of Higher Bid

Thwarted in his plans to acquire control of Cineplex Odeon Corp. with a private purchase of stock, company Chairman Garth H. Drabinsky indicated Friday that his investor group may try to take the firm private by making an offer for all of the Cineplex shares that they currently do not own.

Drabinsky’s move effectively puts Cineplex “in play,” some analysts said, due to the risk that a higher bidder may step forward.

For 40-year-old Drabinsky, however, the gamble may be his best chance of retaining the helm of the movie theater concern that he helped found 10 years ago. The Cineplex chairman appears to have lost the confidence of his two largest shareholders, MCA Inc. and Canada’s Charles R. Bronfman family, which together own 79% of the company’s equity.

During the past three weeks, the Bronfman clan tried to sell its 30% stake to Drabinsky in a private deal. But MCA--which owns 49%--objected vehemently to the Cineplex board, in court and at the Quebec Securities Commission, saying Drabinsky should be required to make the same offer to all shareholders.

In the midst of the battle, an MCA vice president swore in a court affidavit that MCA and Bronfman representatives on the Cineplex board had been “extremely critical of the management of Cineplex . . . particularly with respect to the financial reporting practices and procedures which management followed.”

Valued at $709 Million

Quebec regulators twice rebuffed the private sale, and on Thursday--after a renewed threat of legal action by MCA--the Bronfmans and Drabinsky group abruptly abandoned a third effort to win the commission’s approval. On Friday, the two groups acknowledged that they had dropped the transaction “by mutual agreement.”

The bid for the Bronfman stake suggests that Drabinsky has assigned a value of at least $709 million to the total company, or $14.76 per share. Those figures approximate the $17.50 (Canadian) price that he agreed to pay for each of the Bronfman shares.

On the New York Stock Exchange, Cineplex shares rose 87.5 cents to close at $14.125, with a volume of 1.02 million shares traded.

In a prepared statement, Toronto-based Cineplex said it had been notified that Drabinsky and other members of his group “are exploring with their advisers the possibility of making a proposal” for all of the shares they do not own.

The news was greeted with skepticism in some quarters, because some analysts and lenders contend that the company is already too debt-laden to finance a leveraged buyout. At year-end, Cineplex reported $664 million in long-term debt, although it recently sold a major Florida asset for $150 million to reduce the debt.

“You can’t finance the deal. Already they can’t cover their debt,” contended one hedge-fund manager who is “short” on the stock--betting the price of Cineplex shares will fall. “The whole idea of an LBO is the ‘L’ for leveraged, and they’ve already got it.”

Another Buyer Possible

A banker who lends to movie theater companies also predicted privately that financing a Cineplex buyout “would be very difficult to do.”