Drabinsky, Gottlieb Ousted From Troubled Cineplex

The ax fell Friday for two long-embattled executives at Cineplex Odeon Corp. who had offered to buy the movie theater concern for $700 million but couldn’t secure financing.

The ouster of Cineplex Chairman Garth H. Drabinsky and Vice Chairman Myron I. Gottlieb ended an eight-month drama that began when the two tried to seize control of the company without the blessing of the largest shareholder, MCA Inc. of Los Angeles.

The departures, however, won’t immediately solve Cineplex’s financial problems that have surfaced in the interim. The company said it will shed assets to cope with its hefty debt, but some competitors shook their heads over the magnitude of the task at hand.

As of Sept. 30, Cineplex said it had $580.6 million in long-term debt, with only $12 million available to borrow under its existing credit lines. The company had just $2.7 million of cash on hand and had negative working capital--that is, its current liabilities exceed its current assets.

For 41-year-old Drabinsky, the ouster was an ignoble ending to his 10-year reign at the movie theater chain he helped start in the basement of a Toronto shopping mall. But the end was hardly unexpected by friends and detractors alike, who recall that once before, in 1982, Drabinsky almost lost control of the company.

Cineplex teetered on the verge of bankruptcy then but made a terrific comeback with the help of big investors; it now ranks as the second-largest chain in North America. Drabinsky built the company through costly acquisitions, however, and spent too much building marble palaces, according to critics who say Cineplex’s options are now limited.

The company has been valued at $300 million to $400 million by some potential buyers--far below the $700-million price assigned by Drabinsky, who tried to find financing for a bid of about $14 per share (U.S.).

“They can sell the company and maybe get $8 a share, or they can run it two years and try to improve the company and, hopefully, the deal market comes back,” said one entertainment industry executive.

Cineplex shares this week sank to a new 52-week low of $7, rising 12.5 cents Friday to close at $7.125 on the New York Stock Exchange. MCA shares declined 75 cents to close at $68.25 on Friday.

But MCA views its 49% stake in Cineplex as a long-term investment, according to MCA Executive Vice President Charles S. Paul, who has shuttled back and forth to Toronto during the months-long crisis.

“We’re not in here just to try to get it in a position to sell it,” Paul insisted in a telephone interview. “We’re not sellers in this business. These are assets that make sense for us to own. All we ask is this company be managed in a rational way.”

To that end, Cineplex directors tapped a senior Cineplex official, Allen Karp, to run the company as president and chief operating officer. Karp, who was Drabinsky’s outside attorney until he joined the company three years ago, has been president of the theater division since August, 1988.

By industry standards, the 49-year-old Karp is still relatively inexperienced but “it’s the best they can do right now. They’re trying to clean up,” said one competitor. “He understands losses and the bottom line. It shouldn’t take him long to get the hang of it.”

The Cineplex board also named a new chairman, E. Leo Kolber, who has long been associated with the powerful Charles R. Bronfman clan.

The Bronfmans hold the second-largest block of Cineplex shares and ignited the Drabinsky-MCA battle last spring when they agreed to sell their Cineplex holdings to Drabinsky and Gottlieb in a private deal for $17.50 per share (Canadian), or about $14.76 in U.S. currency.

MCA was enraged and went to court as well as to Canadian regulators, who blocked the deal because the same offer wasn’t made to other shareholders. In a court document, MCA also publicly questioned the Cineplex management’s financial reporting practices, creating more furor for the publicly traded company.

MCA has been prepared to fire Drabinsky “since April, when he tried to steal control,” Paul said, “but we had obligations to (other) shareholders to give Garth a chance to make a fair deal.”

As part of their contracts, Drabinsky and Gottlieb together will receive a “golden handshake” worth about $8 million, Paul said, but the corporate jet returns “to the hangar” for sale.

The two departing Cineplex executives have agreed to purchase a downtown Toronto theater and its rights to the “Phantom of the Opera” production for $88 million (Canadian), or about $75.47 million.

Cineplex has already sold a 49% stake in its Film House post-production facility and a half-interest in a Florida theme park currently under construction. Paul indicated that the remaining stake in Film House will go on the auction block and that the company will now scrutinize investments such as a new British theater chain.