Credit Lyonnais Bank Nederland has taken control of troubled MGM-Pathe Communications Co. and is seeking to sell 40% of the company’s stock, securities documents filed Monday show.
The European banking giant was granted voting rights to 98.5% of MGM-Pathe’s common shares in an agreement signed last month. Credit Lyonnais also assumed authority over 89.5% of the common stock in MGM-Pathe’s parent company, Pathe Communications Corp., according to filings.
Documents show that MGM-Pathe and its parent ended the previous year in the red. The studio reported a net loss of $61.6 million on revenue of $281.5 million for the eight weeks ended Dec. 29. Those losses include $40.7 million in acquisition-related costs, including paying out employee stock options and investment banking and legal fees. Pathe, the parent corporation, lost $107.7 million on revenue of $525.9 million for the full year ended Dec. 29.
Credit Lyonnais, MGM-Pathe’s chief lender, took command of the studio shortly after creditors filed an involuntary bankruptcy petition against it in March. Control of the companies was surrendered by their majority shareholders, Giancarlo Parretti and Florio Fiorini, in their capacities as heads of Pathe and Melia International, another holding company with a stake in Pathe.
Documents show that Credit Lyonnais demanded the resignation of Parretti as MGM-Pathe chief executive as part of the agreement. The bank also hung a “For Sale” sign on the studio. Securities and Exchange Commission filings on Monday show that Clinvest, the investment banking arm of Credit Lyonnais, was given authority to sell 40% of MGM-Pathe stock in April. If a buyer cannot be found by Nov. 30, Clinvest is empowered to try to sell 51%.
Credit Lyonnais, which has a longstanding relationship with Parretti, has recently suffered some embarrassment over its dealings with the Italian financier. The French finance ministry reportedly is investigating the state-owned bank’s ties to Parretti. The dealings leading up to Parretti’s purchase of MGM-Pathe are also said to be the subject of an SEC investigation.
Monday’s SEC filing marked MGM-Pathe’s first disclosure of Credit Lyonnais’ new oversight role and the proposed stock sale, even though it was approved more than two weeks ago. An MGM-Pathe spokesman downplayed the significance of Credit Lyonnais’ voting control and said the bank intends to seek a buyer only if MGM-Pathe is unable to reduce its bank debt to $125 million. Credit Lyonnais has already loaned $250 million to the company and has approved an additional $145-million loan, subject to the bankruptcy petition being dismissed.
Documents indicate that Credit Lyonnais demanded control of MGM-Pathe in return for the $145-million loan, which is needed to settle creditors’ claims and finance the release of several movies that have been completed. The bank wrote in one letter that the management changes were needed to provide MGM-Pathe with “stability.”
Alan Ladd Jr., MGM-Pathe’s respected studio chief, assumed control of the company following Parretti’s departure in a move that was approved by the bank. Ladd then appointed longtime associate Jay Kanter as the studio’s new chief operating officer, according to the documents.
Under an unusually rich contract, Ladd is guaranteed at least $2.5 million a year through 1995, the filing shows. He is to be paid $250,000 for each film made under his aegis. Ladd is also entitled to 10% of all profits from Pathe Entertainment, a production company that will serve as a subsidiary to MGM-Pathe. MGM-Pathe is to provide the new company with $20 million in development funds and $100 million in production funds annually through 1995.
Kanter is to receive $550,000 a year in his new role, according to the documents, which show that Parretti was paid $800,000 a year, plus bonuses tied to pretax company earnings.
Parretti, who purchased MGM/UA Communications Corp. for $1.4 billion last November in an oft-delayed deal, retains control over the company’s board of directors despite his ouster. The documents show that Parretti can name three of MGM-Pathe’s five board members.
MGM-Pathe, which hasn’t released a film since January, has challenged the Chapter 7 bankruptcy proceedings on grounds that the company can operate effectively once the promised $145-million loan from Credit Lyonnais comes through. Credit Lyonnais has conditioned the loan on the company’s settling the bankruptcy claim. A hearing on the action in U.S. Bankruptcy Court in Los Angeles, filed by creditors who claim to be owed more than $16 million, is scheduled for May 16 and 17.
The year-end results filed with the Securities and Exchange Commission revealed a worsening financial condition for both MGM-Pathe Communications Co. and Pathe.
Pathe’s net loss of $107.7 million for the year included a $66.8-million writedown on loans and investments in the fourth quarter covering various European ventures.
In the year-ago period, Pathe Communications posted a net loss of $32.4 million on $349.5 million in revenue. The higher revenues in 1990 reflect the November, 1990, purchase of MGM-Pathe.
The operating loss for 1990 totaled $42.4 million, compared to $69.1 million for the year-earlier period.
MGM-Pathe separately reported results for the two periods before and after its Nov. 1, 1990, takeover by Pathe Communications.