NHI Nelson Holdings International Inc., ending months of speculation that it would divest its highly leveraged film subsidiary, said Monday that it had a letter of intent to sell Nelson Entertainment Group Inc. to New York financier Stephen C. Swid for $30 million plus the assumption of $186 million in debt and other liabilities.
The deal marks a further thinning in the ranks of independent film and TV production companies, which are finding it increasingly difficult to compete with the well-heeled major Hollywood studios.
Nelson until last year appeared to be among a handful of successful independent studios. But this year it began suffering losses due to lower home video rentals and a drop-off in income after it sold certain foreign distribution rights. In addition, net losses widened because of higher depreciation, amortization and interest costs.
Swid is chief executive of SCS Communications Inc., a New York-based holding company principally owned by the Swid family. He formed SCS last year after being part of a partnership that sold CBS Songs to Thorn EMI for $308 million.
The purchase price includes a $30-million cash and notes payment plus the assumption of about $166 million of Nelson Entertainment Group’s liabilities and another $20 million of debt associated with parent company, Nelson Holdings.
After the transaction, Toronto-based Nelson Holdings will be debt-free but will still own 69% of Nelson Vending Technology Ltd., a video vending machine company. In addition, Nelson Holdings receives a five-year warrant to buy 5% of the stock in the new company that SCS will create to acquire NEG. SCS, similarly, gets a five-year warrant to buy 5% of Nelson Vending Technology.
The companies also said Swid would pump $30 million of additional capital into NEG.
Nelson Entertainment Group was formed after Nelson acquired Embassy Home Entertainment from the Coca-Cola Co. for $85 million in 1986. The division consists mainly of a film operation and a home video operation. Nelson distributes its films through Columbia and Orion.
The company has borrowed heavily to expand into the motion picture business over the last four years and has had some hits, including the 1989 releases “Bill and Ted’s Excellent Adventure” and “When Harry Met Sally,” the latter of which it co-produced. It also co-produced with Warner Bros. the current release “Hamlet.”
Analysts have pegged a co-financing and distribution agreement that Nelson has with Rob Reiner’s Castle Rock Entertainment as the independent studio’s most valuable asset. Under that agreement, Nelson has North American home video rights and foreign rights in all media to 14 Castle Rock films, of which four have been produced to date.
But after suffering lower revenues, particularly among its home video operations, Nelson last summer began cutting staff and consolidating its international sales and marketing operations. A recently opened TV division headed by former Columbia Pictures production chief Steve Sohmer was also closed. Nelson said it intended to focus on producing and marketing films.
The company had previously stated that it was looking for new financial arrangements to help finance upcoming film releases.
Nelson’s total liabilities stood at $166 million as of the end of the third quarter, of which about $40 million represents accounts payable and accrued royalties. The principal bank loans are owed to Credit Lyonnais, a European bank active in entertainment lending.
During the last year, Swid has embarked on a buying spree of small-to-medium size entertainment and media companies in order to build SCS into a broad-based communications company. He bought Westview Press, a college textbook publisher in Boulder, Colo., a controlling interest in Spin magazine and Cinecom Entertainment Group, a New York-based producer of independent films.
Cinecom and NEG will be merged into one company following the acquisition, the companies said.