MCA Stock Paid to Geffen Worth Less Than Reported

David Geffen may want to take stock of his MCA Inc. holdings.

In a report filed Monday with the Securities and Exchange Commission, the entertainment company says the MCA shares that Geffen received when he sold his record company last month are worth about $110 million less than their widely reported value.

By purchasing Geffen Records, MCA obtained a roster of artists that includes Guns N’ Roses, Don Henley, Whitesnake and Cher.

Geffen’s 1 million shares of convertible preferred stock are valued at $435 million in MCA’s quarterly report. When the deal was announced, however, the shares were said by analysts to be worth about $545 million.

Harold M. Haas, MCA vice president and chief financial officer, said the discrepancy is due to the encumbrances placed on the stock. “It is basically discounted to provide for the restrictions,” Haas said. “It has restrictions on how and when he can sell it.”

This is no surprise to Geffen, Haas added, saying, “He knows exactly what he’s getting.”

Geffen, however, questioned MCA’s explanation. He said he attributed the lower stock value to the fact that he had distributed a portion of the shares to his employees.

Under the terms of the deal, which was widely criticized as overly generous at the time, MCA issued Geffen 1 million shares of a new preferred stock that can be converted into 10 million shares of MCA common stock. Each preferred share pays an annual dividend of $6.80--or 10 times the dividend on a common share--but carries only one vote.

The preferred stock was valued by analysts at $545 million based on the closing price of $54.50 a common share when the deal was announced. MCA, however, said the price was reduced by a provision that prevents Geffen from converting more than a small portion of the shares into common stock for the next four years.

Geffen remains unfazed. “I got paid 10 million shares of stock,” he said in a telephone interview Monday. “Whatever it was worth is what it (the stock) was worth at the closing that day.”