Chairman Puts Bid Together for Cineplex Odeon

Six months after a nasty brawl with his major shareholder, the intrepid chairman of Cineplex Odeon Corp. on Tuesday reached an agreement with his outside directors to proceed with a takeover bid for the company. The bid is valued at nearly $16.50 per share (Canadian), or almost $14 in U.S. currency, according to sources familiar with the Toronto movie-theater concern.

The bid would be worth about $700 million (U.S.), and the buyer would also assume about $600 million in debt.

Cineplex Chairman Garth H. Drabinsky will have 21 days to formally launch the bid, which requires firm financing under Canadian law. The price exceeds the pessimistic valuations of $4 to $9 (U.S.) for the stock, set by speculators who have bet the stock price will plummet and have sold the stock “short” over the past 18 months. The deal will require a “fairly creative capital structure,” according to one Wall Street source, who said financing arguably could come from bank and junk bond financing, “a lot of equity” and short-term loans until certain assets can be sold.

“He’s going to have to sell . . . substantially all of the U.S. circuit,” declared one industry source. Cineplex currently ranks second-largest among theater companies in North America, with about 1,200 screens in the United States and about 500 in Canada.

Trading of Cineplex shares was halted four minutes before the close of the New York Stock Exchange at the company’s request. The stock closed at $11.25, up $1.125 on a volume of 828,300 shares, or more than double the recent average daily volume of 330,000 shares.

A spokesman for an independent Cineplex directors’ committee said an announcement would be made early today before trading resumed.

The independent committee was formed last spring to sell the company after the Cineplex chairman offended his largest shareholder, MCA Inc. of Los Angeles, by attempting an end-run for control.

Drabinsky and a group of investors had privately struck a deal to acquire stock held by the Charles R. Bronfman clan for $17.50 per share (Canadian), but MCA protested that the Drabinsky group would enjoy control without offering the same price to other shareholders.

After MCA went to court and petitioned Canadian regulators, the Bronfman group bowed to the pressure to form an independent committee. In mid-June, the company formally went on the auction block by providing financial data to potential buyers.

The prospective buyers included other theater companies and Los Angeles-based Davis Co., led by former 20th Century Fox Film Corp. owner Marvin Davis, but in recent weeks, the industry wagered that Drabinsky would win the company if he could put together a bid.