General Cinema to Buy Harcourt Brace Jovanovich : Publishing: The giant theater chain offers $1.4 billion. Completion of the deal hinges on whether the book company’s bondholders will accept a discount on their debt paper.
General Cinema Corp., which owns one of the nation’s largest theater chains, agreed to buy debt-strapped publisher Harcourt Brace Jovanovich Inc. in a deal valued at about $1.4 billion.
If completed, the purchase will help Orlando, Fla.-based Harcourt to avert what the company has said is a looming default on some of its $1.9 billion in debt as early as next year. It will also give Newton, Mass.-based General Cinema control of the one of the nation’s largest book publishing operations.
But success will depend on whether holders of high-yield junk bonds issued by Harcourt in a 1987 restructuring are willing to sell their bonds to General Cinema under a tender offer that proposes prices far below face value for some of the notes.
“We have no reason to think this process will be easier than any other process” involving creditors, Harcourt Chairman John S. Herrington said Thursday in a telephone interview.
Harcourt publishes a wide array of textbooks, trade books, and scientific and professional journals, and also has a large insurance operation. About 10% of its 6,400 employees work in publishing operations in San Diego. The company is expected to post a 1990 net loss of about $6 million on about $1.4 billion in sales, according to a Value Line estimate.
Harcourt became deeply indebted when it chose to ward off an unwanted takeover bid from British publisher Robert Maxwell by borrowing funds and paying a cash dividend of $1.67 billion, or $40 a share, plus 48 million preferred shares, to stockholders.
In 1989, the company sold off real estate and its theme parks to Anheuser-Busch for $1.1 billion. The division that was sold included Sea World parks in San Diego, Ohio, San Antonio and Orlando, as well as the Cypress Gardens and Boardwalk & Baseball parks in Florida.
Despite the sales, Harcourt officers began searching for a merger partner last year after concluding that the company would be unable to make accelerated debt payments, beginning with $700 million due in March, 1992. “It didn’t take a crystal ball to see this company was going to be in default,” Herrington said.
Herrington, who served as secretary of energy in the Reagan Administration, joined Harcourt last year. The 51-year-old executive said he expects to leave once the sale is completed.
Peter Jovanovich, 41-year-old son of longtime Harcourt Chairman William Jovanovich, who is now retired, will remain president and chief executive of the book company after the acquisition, Herrington said.
General Cinema spokesman Peter Farwell said his company will walk away from the deal if bondholders mount any serious resistance. “Our approach to the bondholders is that this company has run out of options. The only alternative we see for them is bankruptcy,” Farwell said.
General Cinema Chairman Richard A. Smith was traveling and couldn’t be reached. According to Harcourt’s Herrington, the companies began talking in “November or October” of last year.
Under a definitive merger agreement between the firms, General Cinema will pay only $1.30 a share, or about $94.9 million, for Harcourt’s approximately 73 million common and preferred shares. The balance of the price will be used to purchase or retire debt.
The preferred shares were assigned a value of $10 each when issued in 1987, but were trading at about 62.5 cents before word of a possible deal between the companies surfaced, while the common stock traded at about $1 a share.
Harcourt common shares closed unchanged at $1.25 in composite trading Thursday on the New York Stock Exchange. General Cinema shares closed at $20.50, up 12.5 cents, in Big Board trading.
General Cinema reported a $111.3-million net profit on $2.1 billion in sales for the fiscal year ended Oct. 31. The company amassed a $1.6-billion cash hoard after selling its large soft-drink-bottling operations to Pepsico in 1989, and then selling a 16% interest in Cadbury Schweppes PLC.
General Cinema, which appears to be the fourth-largest U.S. theater operator, with about 1,500 screens, was rebuffed last fall when it tried to purchase the 40% of Neiman-Marcus Group it doesn’t already own for about $240 million. Bert Boksen, an analyst who follows the publishing industry for Raymond James & Associates in St. Petersburg, Fla., said General Cinema was getting “a bargain-basement price. It’s probably half of what (Harcourt) would have fetched a couple of years ago.”
Bruce Eliot, a portfolio manager in Los Angeles with Houlihan, Lokey, Howard & Zukin, said General Cinema’s offering prices for the debt securities would be attractive to holders of certain bond issues but might not be accepted by others. “It’s a little bit of a game of chicken. The debt holders have to ask if there are really other buyers out there.”
General Cinema said it would offer prices ranging between $324 and $930 per bond for five different debt issues. All of the issues have been trading at discounts to their $1,000 face value.
If the deal does not close quickly, Farwell, the General Cinema spokesman, said his company would simply return to what he called a “buyer’s market” for other assets that are trading far below previous values in the weak economy. General Cinema has an option to buy Harcourt’s Academic Press unit in San Diego for $390 million in cash under certain circumstances if the merger isn’t completed.
The General Cinema spokesman said his company didn’t plan any management changes at Harcourt, but expected the publisher to push more heavily into electronic information systems. “We will have funds for that,” Farwell said.
Neither company indicated a plan to sell off Harcourt assets after the acquisition.
Herrington said Harcourt expects to develop new programs in its core educational publishing businesses. “I look at this as a new beginning with a clean slate for one of the country’s best publishing houses,” Herrington said.
Staff writer Chris Kraul in San Diego contributed to this story.
HARCOURT BRACE Headquarters: Orlando, Fla.
Interests: Publishes textbooks, educational materials and general interest books. Also underwrites life and health insurance, and sells property and casualty insurance through the Federal Home companies and other insurance subsidiaries.
Employees: 6,400
Revenue: $1.4 billion (for year ended
Dec. 31, 1990)
Estimated Loss: $6 million
Total Debt: $1.9 billion
GENERAL CINEMAHeadquarters: Newton, Mass.
Interests: Operates one of the country’s largest movie theater chains, with 1,500 screens. Also owns a 60% stake in Neiman-Marcus Group. Has been cash rich since it sold its soft-drink bottling business to Pepsico for $1.77 billion in 1989.
Employees: 22,700
Revenue: $2.1 billion (for fiscal year ended Oct. 31, 1990)
Earnings: $111.3 million
Total Debt: $730 million
Cash on hand: $1.6 billion
