For Lew R. Wasserman, the selling of MCA Inc. began with a phone call at home on the Labor Day weekend.
The caller was Michael S. Ovitz, a 43-year-old talent agent with whom Wasserman had sometimes fought--but whom many in Hollywood found to be from Wasserman’s own mold, aggressive, hard and wildly ambitious.
Ovitz suggested that he might have a buyer for MCA, the $4-billion-a-year entertainment conglomerate at which Wasserman, 77, had spent 54 years. Matsushita Electric Industrial Co., a corporate behemoth based in Osaka, Japan, was interested.
Wasserman said he wasn’t especially eager to peddle MCA, though close associates confirm what had become well known in the business world--that the aging mogul for at least five years had been angling for some sort of corporate alliance.
The two agreed to talk. And so, with understatement and polite fictions, began a colossal poker game that ended three months later in a $6.59-billion deal, the largest purchase ever of an American company by a Japanese firm. It promises to change the face of the entertainment industry as new investment fuels a likely wave of acquisitions by MCA, but it also puts ultimate control of that growing pyramid of assets in faraway Osaka.
MCA produces music, movies and TV shows. Matsushita, approaching $50 billion in sales, makes, among other things, the equipment on which people consume much of what MCA manufactures. That two such companies should merge, just as Sony acquired Columbia Pictures last year, may only be natural. But the process of joining them had to bridge the wildly disparate cultures of Wall Street, Hollywood and industrial Japan--and it will almost certainly be studied for years to come as a textbook illustration of the deal maker’s art.
If Wasserman wasn’t aware that Ovitz had leveled his sights on MCA, it could only be because he had long tuned out of the breakfast and lunchtime table talk by which Hollywood keeps in touch with itself.
For six months or more, the gossip circuit had been dimly aware that Ovitz, chairman of the powerful Creative Artists Agency, had developed an interest in the Universal City company that went far beyond a desire to sell clients or command a premium price for his next film package.
According to the rumors, Ovitz had grown restless with his role as a talent agent--an exhausting profession in which even the most powerful practitioner ultimately must answer to every client on his Rolodex--and had begun to see himself as something more. Some intimates believed that Ovitz, a Japanophile who had helped to match Sony with Columbia the year before, meant to recast himself as nothing less than a broker of whole companies--a kind of investment banker to the stars. Others felt he was gunning for Wasserman’s job and, with it, the mantle of industry leadership.
In fact, Matsushita was searching for an entertainment acquisition and had contacted Ovitz in early fall of 1989, just as he had finished working on the $3.5-billion Columbia acquisition. The deal had made him a celebrity in Japan and triggered a landslide of similar inquiries. When Ovitz’s staff reviewed Matsushita’s financial structure, they quickly realized that they were dealing with a company capable of even the biggest Hollywood purchase.
In November, Ovitz met one of Matsushita’s top managers, Executive Vice President Masahiko Hirata, in Honolulu. For two days, the agent explained the inner workings of Hollywood, while Hirata talked of his company’s goals. Similar meetings followed in Los Angeles and Osaka during the next six months.
In the spring, Ovitz’s team presented Matsushita’s options. Orion Pictures, Paramount Communications and MCA were identified as prospects, but Ovitz recommended an approach to MCA. A key factor appears to have been MCA’s theme parks, in which Matsushita was deeply interested. Ovitz was also comfortable with MCA, where he worked as a Universal Studios tour guide while in college. And MCA’s management appeared nearly as conservative as Matsushita’s.
Within days, CAA began to prepare a detailed report on MCA. In late August, a confidential feeler was extended to Felix Rohatyn, a prominent investment banker with Lazard Freres & Co. and a member of MCA’s board.
Outwardly, MCA executives have always said they would listen to legitimate buyout offers but were not actively seeking to sell.
Privately, however, MCA had been going through an intricate dance since the mid-1980s as it searched for a partner without wishing to seem desperate. The company was sound, but its ambitions had begun to exceed its access to funds, particularly after a huge investment in Canada’s Cineplex Odeon Corp. turned sour. MCA needed money to challenge Walt Disney Co.'s theme parks.
Wasserman’s age had also become a concern. Sidney J. Sheinberg, the company’s 54-year-old president, was the heir apparent and held control of day-to-day affairs. But Wasserman worried that any successor, lacking his own political clout, might not hold the company intact.
MCA had fielded approaches from Disney, Sony, RCA and 20th Century Fox. Earlier this year, it also discussed a merger with Paramount Communications Co. but broke off the talks when the companies couldn’t decide who would run things.
Wasserman is by nature aloof, even with executives as trusted as Sheinberg. Those who dealt with him through the weeks of bargaining found him, by turns, excited, irate, anxious and inscrutable. Sheinberg, for his part, pushed vigorously for the Matsushita deal and immediately took charge for MCA after the first approach.
Volatile by nature, the Texas-born executive brought his confrontational tendencies under control. He worked smoothly with Ovitz despite past clashes between the two. Wasserman, too, had fought with the agent more than a year ago, when Ovitz reportedly tried to impose an eleventh-hour renegotiation of director Robert Zemeckis’ contract for a pair of “Back to the Future” sequels. Supposedly, Wasserman prevailed.
Wasserman claims to have been skeptical of the Matsushita deal until the last minute. “Having spent the better part of my life in negotiations, I’m never convinced anything is going to happen till it happens,” he says.
Yet he began to feel a nostalgia that seemed to point toward a sale. In his words: “You get a couple of lumps in your throat. It revives a lot of memories of the past. . . . It’s an emotional thing. It makes you think back over the past 54 years quite a bit.”
By someone’s design, the secret negotiations became public on Tuesday, Sept. 25. Word of the talks surfaced in a Wall Street Journal story based on unnamed sources. MCA stock immediately shot up $19.50 a share to $54.
Ovitz was in Osaka meeting with Hirata and Matsushita President Akio Tanii when the story broke. The Japanese, who are wary of doing business publicly, considered breaking off the talks.
Each side still blames the other for the leak. In any case, Ovitz, who returned to the United States that day, worked closely with Sheinberg to contain the damage.
MCA officers were particularly concerned because they hadn’t yet “positioned” themselves in Washington and they feared an angry backlash from lawmakers who might try to block the deal.
Eventually, there would be bitter voices raised against the deal, which to some represented a sellout of American culture. But Wasserman’s decades of support for politicians may have taken the edge off any resistance. When Rep. Edward J. Markey (D-Mass.) criticized the deal as a gift to the Japanese, one MCA insider complained: “He gets half of his money out here!”
The press continued to be a factor. Despite a determination to keep the talks private, individuals with various interests in the deal opened pipelines to news outlets, in an attempt to control the “spin” of reports. Investors were pulled off base by stories of a much richer deal than was struck. Only at the eleventh hour did a new round of leaks point to the actual prices being discussed, leading to a sharp drop in MCA stock.
Wasserman and his team originally believed that they would meet the Japanese in New York as early as Oct. 3 or 4.
The plan appears to have died suddenly on the night of Oct. 1. That night, a small cadre of MCA executives met in the company’s Black Tower headquarters and agreed on Draconian steps to control the leaks.
They canceled earlier travel plans and agreed to make arrangements without travel agents and, if necessary, behind closed doors to shut out even high-level MCA associates.
The next morning, according to one person, Sheinberg went so far as to call both David Geffen, who held 10 million MCA shares and headed its Geffen Records unit, and Allen, who was advising Ovitz, to explain that both would be “cut out of the loop” for a time to get the Japanese back on track.
Geffen says he was in “constant” contact with Sheinberg and Wasserman and was never excluded from their deliberations. He became a peculiar adjunct to the deal. He played no official role yet was never far from the action. He owned almost twice as many MCA shares as Wasserman, having sold his record label to the company in April. The sale occurred when MCA stock was trading at $54.50, but by mid-September it had declined to $34.50. Geffen didn’t belong to the MCA board, and most of his stock was held in special, convertible-preferred shares that gave him no direct voice in MCA management.
Geffen was vacationing off the Greek coast when Sheinberg told him of the offer. Geffen favored a deal from the outset. He decided to sell to MCA because he believed that Wasserman would sell out within 36 months, leading to an enormous profit for himself.
The biggest mystery in the deal remains the Japanese.
Press reports briefly mentioned Matsushita President Akio Tanii, who was less well known to the West than Sony’s Chairman Akio Morita and belonged more to the conservative culture of industrial Osaka than to Tokyo’s globe-trotting business set. Only on Oct. 13 did U.S. reports, working from translations of Japanese reports, identify Tanii’s lieutenant Hirata as Matsushita’s point man.
Hirata belonged to a cluster of Matsushita executives who had risen with Tanii. An accountant, he was at one with Matsushita’s tight-fisted business culture. But he had also been the corporation’s agent abroad, addressing securities analysts in London and New York in past years, while advancing Tanii’s program of modernization.
In a reflection of corporate rivalries back home, Sony executives, in their growing contacts with the Hollywood community, made no secret of their belief that Matsushita managers were too hidebound to accomplish something so grand as an MCA purchase. Sony President Norio Ohga, in Los Angeles over the weekend of Nov. 12-13, was still betting that Matsushita, accountants and penny-pinchers, would never close the deal.
Hirata, in fact, proved himself more nimble than Morita. He wrapped up an acquisition twice as large as the Sony purchase in less time. And he appears likely to sidestep the entanglements that Sony encountered when it lured movie producers Jon Peters and Peter Guber away from a contract with Warner Bros., only to be hit with an embarrassing lawsuit.
On Oct. 7, Wasserman had his first personal encounter with Hirata and Keiya Toyonaga, another Matsushita executive, during a secret meeting at the MCA chief’s Beverly Hills home. The Japanese, according to one MCA insider, seemed to regard Wasserman with awe.
Within days, Matsushita retained Allen & Co. as an investment banker and Simpson, Thacher & Bartlett for legal advice.
In the weeks following, it became clear that the Japanese were reluctant to share their complete trust with any outsider, even Ovitz. The Wall Street Journal would later report, for instance, that Matsushita, without Ovitz’s knowledge, had secretly retained the investment banking firm of Wasserstein Perella & Co. to offer a second opinion.
At one point, members of Matsushita’s U.S. team even began to suspect sabotage by Matsushita employees who opposed the deal--which Tanii was pushing through without the customary broad consensus.
The suspicion of sabotage became acute when a Japanese news service reported that Matsushita was fed up with MCA’s demands for a high price and wanted a “cool-off period” to let MCA stock “run out of steam.” Within minutes, MCA stock dropped more than $10.
Ovitz, pulled from his agency’s customary Wednesday morning film meeting, woke Hirata in the dead of the night. Within two hours, Hirata soothed the market with a written statement that the talks were progressing.
The final meetings--held on relatively neutral ground in New York City--were characterized widely as “face-to-face.” But they were actually a series of disjointed sessions in which each side convened separately, even as their various representatives faced one another intermittently across a table.
MCA has its own corporate office in New York but met most often in the Park Avenue offices of Wachtell, Lipton, Rosen & Katz. The law firm, a veteran of the takeover wars, was heavily equipped with communications facilities and staffed with lawyers who were accustomed to running a 24-hour drill when big deals came to a head.
MCA staff members were ferried to New York on the corporate jet, a top-of-the line Gulfstream IV that Wasserman, after years of resistance to such extravagance, had finally agreed to buy the year before. As they began to arrive on Wednesday, Nov. 14, most checked into the Regency, a plush Park Avenue hotel that turned into a virtual MCA dormitory. Sheinberg stayed at his own apartment at the Trump Tower on 5th Avenue. Wasserman, who has never mingled closely with his executives, stayed a few blocks away in his New York apartment in the Sherry Netherland hotel--in the same building where Allen, the Matsushita investment banker, lives.
The Matsushita team worked largely from the Midtown offices of Simpson, Thacher & Bartlett, with which Ovitz had dealt in the past.
Sheinberg has said the bargaining turned into a “one-hour television drama, with lots of peaks and valleys.” Seen differently, it was still a poker game, with an elaborate series of bluffs and forays on the crucial question of price.
As early as September, Wasserman and the Japanese had discussed basic matters of corporate governance. In the first serious bargaining session--at Sheinberg’s apartment on Monday, Nov. 19--the sides quickly agreed that both Wasserman and Sheinberg were to remain with the company under five-year employment contracts. The chief executive’s office would default to Sheinberg automatically if Wasserman were for any reason unable to fill his office. There would be no significant changes in MCA personnel or policies--though managers in the ranks would not get new contractual guarantees.
Yet both sides kept their positions on price vague--and Wasserman still declines to say precisely what his feelings were about an appropriate price for MCA. In his words: “What was in my head is going to stay in my head.”
As recently as a year ago, in internal MCA discussions, Wasserman had insisted that his company would command $100 a share. His expectations clearly diminished as the market battered media stocks and MCA shares collapsed below $35. But he telegraphed to the Japanese at the outset that he expected a rich payout of between $75 and $90 a share for MCA.
Things had also changed for the Japanese. In September, they had considered the range realistic. But that was before the world economy had registered the full extent of damage that would be caused by Iraq’s invasion of Kuwait. Matsushita also insisted that “due diligence” examinations of MCA’s finances militated toward a lower price.
The Matsushita team set its position at a private meeting on Monday afternoon. In a bizarre twist, Washington attorney Robert S. Strauss--an MCA board member who is personally close to Matsushita’s Toyonaga--attended the meeting, having been retained by Matsushita under an arrangement permitted by a waiver from MCA.
The discussion was troubled. Matsushita had decided to come in well below the earlier price range. Ovitz was reportedly authorized to offer a maximum of $65 a share, including the roughly $5-per-share value of MCA’s WWOR-TV station, which would have to be sold separately because of federal restrictions on foreign ownership.
By the next morning, MCA had been hit with the news and wasn’t pleased. The deal was already fragile. Each side suspected the other of escalating press leaks, and the Japanese only the week before had actually canceled their flight to New York until Ovitz turned them around.
Averse to confrontation, the Japanese appeared little inclined to wrangle over price. Wasserman reportedly was kept away from direct price talks by his own team because it feared he might become volatile in a meeting with the Japanese. “Look, Lew does get irritable,” an MCA insider noted.
By Wednesday, Wasserman wasn’t the only irritable one. Matsushita had come up to $70 a share. MCA was still holding out for $75.
At about 7:30 p.m., the deal appeared close to dead. Ovitz left to spend Thanksgiving in Los Angeles, apparently hoping to shock the sides into some movement. The Japanese also considered leaving. Allen and Rohatyn headed for Long Island. But the talks were salvaged in the early hours of Thanksgiving Day in a session brokered by Allen, as Strauss and Rohatyn--both MCA board members--came to an understanding.
MCA would deal if Matsushita raised its offer even slightly. The Japanese by early Thursday agreed. Hirata and Toyonaga met Wasserman and Sheinberg shortly afterward. They reached an accord at $72. The Japanese would pay $66 per share, and both sides concurred that the station would be spun off to shareholders at a presumed value of $6 a share.
On Thursday morning, the board met by telephone and approved plans for a Sunday meeting. The session lasted 13 hours, but Wasserman says there was no serious opposition to a deal. The vote to accept was taken at midnight, and the directors left at 1 a.m.
The MCA chairman returned to the Sherry by 1:30 a.m. and discussed the deal with his wife, Edith, then found he couldn’t sleep. He spent several hours in a chair in the couple’s living room, staring out at Central Park, feeling wistful and thinking of the late MCA founder Jules Stein, who had treated him as a surrogate son. “I was thinking back over the years. I decided Stein would have been very happy,” he said.
Within minutes of the meeting’s end, telephone reports were leaked back to friends in Hollywood. According to one of the earliest reports, which is disputed by others, Sheinberg had told the board that, despite his contractual guarantees of succession, he did not see himself as the long-term heir to power at MCA.
At least some MCA insiders continue to believe that an American corporate giant such as General Electric may descend with a new bid.
Yet the only coda to the deal has been a peculiar offer by MGM-Pathe Communications Co. boss Giancarlo Parretti. The Parretti bid, faxed to MCA in Los Angeles, reached Wasserman as he arrived home Monday. He had considered taking Tuesday off but decided instead to come into the office. The executive, who routinely dines in the studio commissary, found someone else sitting at his table.
It was obviously the result of a scheduling mix-up. But Wasserman thought to himself nonetheless: “It didn’t take long for them to move me out.”