. . . Or Should It Have Held On?
Pay attention. The fact that Matsushita got the better of MCA in Hollywood’s big deal offers a very simple lesson on investments--even your own house--in the new decade: Don’t panic, don’t settle for a bad price, keep a little perspective.
In the deal announced Monday, MCA--the owner of Universal Studios--will be sold to Matsushita Electric Industrial Co. of Japan, for $66 per share in cash plus securities said to be worth $5 a share. That’s a total price of $6.6 billion, a lot of dough.
But it’s considerably less than expectations that MCA would sell for $80 to $90 or even $100 a share. Major investors, security analysts and even MCA’s longtime Chairman and Chief Executive Lew R. Wasserman believed that the price for the company, which has major assets in movies, TV shows, records, theme parks and hundreds of acres of prime Los Angeles real estate, would be as much as $8.3 billion--fully one-fourth more than MCA settled for.
And that sends a troubling message for other assets. Declines in office building values are said by experts to be moderate--20% in the Northeast, but not so much elsewhere. House prices in most parts of the country are said to be holding up reasonably well--down perhaps 5% or so. But a deal such as MCA makes you wonder.
All the more so because the expectations of higher prices were rational, based on deals done in the 1980s--Ted Turner’s $1.2-billion purchase of MGM’s film library in 1986, Time’s merger with Warner Communications and Sony’s purchase of Columbia Pictures last year.
The enduring value of film libraries was a big attraction in all of those deals. And in that respect MCA’s library is a winner, with 2,900 films worth from $250,000 to $1 million each, and 13,500 TV shows, worth $70,000 apiece. Analyst Alan S. Gould of the Dean Witter Reynolds brokerage firm valued MCA’s library at $2.5 billion, minimum.
Another analyst, Alan Kassan of Morgan Stanley, valued the company’s real estate at $1.3 billion and found it easy to put total value at $8.3 billion.
Yet Matsushita was able to drive a hard bargain--just as buyers are doing for houses and condominiums these days--and pay a price 26% below such estimates. The Osaka company took advantage of the economic environment--recession in the air, consumer confidence down, financing hard to come by. And it took advantage of the peculiarities of business Hollywood-style, of Lew Wasserman’s gloomy outlook and of a pervasive nervousness in American business. The ‘80s are over, and we’re not in Kansas anymore.
The fact is, Matsushita could walk away with a real bargain.
Despite a looming U.S. recession, the global promise of the entertainment business remains largely undimmed. Turner Broadcasting, for example, reports that its purchase of MGM’s film library is proving well worth its price. Not only is Turner making a profit on colorized MGM films on domestic cable television, but demand in overseas market continues unabated. “The question over there still is how big the boom,” says a Turner executive in Atlanta. “And there’s Eastern Europe and the Soviet Union ahead of us.”
To serve such an exciting, expanding market Sony a year ago paid $5 billion for Columbia Pictures, a far less substantial company than MCA. Now for only 20% more Matsushita is walking away with MCA’s studio, TV shows, theme parks and real estate--a real bargain.
And that raises the question: Why did Lew Wasserman, one of the shrewdest businessmen in Hollywood history, sell for less? Reports say Wasserman, 77, sold because he is gloomy about worldwide recession, maybe even depression. He’s said to be worried about his health and age. So fearing that he wouldn’t be able to get today’s price over the next year or 18 months, he sold.
Wasserman is not alone in his gloom. Much of American business, it seems, shares his foreboding and caution. Until Giancarlo Parretti entered the bidding late Monday, no U.S. company had sought MCA. One explanation was that laws prohibiting television networks from owning a financial interest in or participating in syndication sales of shows prevented General Electric, which owns NBC, or Capital Cities/ABC from bidding.
Those are only excuses. If U.S. companies wanted to buy MCA, they could have, say legal experts, simply by forcing the issue with the U.S. government which is well disposed to change the laws now that foreign companies are buying up movie studios.
But the really troubling thing about the MCA sale is that it’s occurring because of faulty business thinking. First, a recession is no time to sell a company. You settle for a bad price and lose perspective on the future. Recessions don’t last--most projections for the U.S. economy show a slowdown only in the first half of ’91. So if your company is not in trouble, or you’re not forced to sell your house, don’t do so. Wasserman, who started working for MCA in the Great Depression, above all should know that.
Second, to the extent Wasserman’s age and health played a role in the sale, they shouldn’t have. MCA is not in trouble, not in need of cash. In fact, analysts projections show profits increasing for the next two years. The business could go on, in short.
But Wasserman, like so many studio executives before him, may not believe that. It is a curiosity of Hollywood that in eight decades of creating the greatest film industry in the world, the movie business has never produced the kind of permanent, stable corporation that GM is for autos or IBM is for computers. Instead, studios have waxed or waned with the comings and goings of personalities, of Zukors and Mayers, Zanucks and Eisners.
The point: If MCA had been IBM or GM, or even Matsushita or Sony, the personal worries of one man would not be forcing a sale at a bad time and a bad price.
