General Cinema Acquires Harcourt : Ailing Textbook Publisher Accepts Bid of $1.5 Billion

Debt-hobbled publisher Harcourt Brace Jovanovich said Thursday that it accepted a sweetened takeover offer worth more than $1.5 billion--most of it in cash--from General Cinema Corp., the nation’s fourth-largest theater operator.

Prospects for such a book-movie combination arose in January, when General Cinema offered to buy Harcourt for about $1.4 billion, but unhappy bondholders scuttled the deal three months later.

The revived transaction, which the companies hope to complete by the end of October, would give holders of $1.9 billion in bonds a little more for their investments while offering less to common and preferred shareholders than did the original bid.

“What you’re seeing now is, I think, the culmination of coming out of a very bad period for the company,” said Harcourt Chairman John S. Herrington. The publisher has lost $446 million since it took on nearly $2 billion in junk bond debt to fight off a 1987 takeover attempt by British publisher Robert Maxwell.

“The General Cinema agreement is far better than the alternatives, which include bankruptcy for the company,” Herrington said.

General Cinema spokesman Peter Farwell said the Chestnut Hill, Mass., company has no plans to sell any Harcourt assets. “We’ve been in the market in the publishing industry for some time,” he said, adding that Harcourt “has a nice mix of businesses.”

Under the proposed merger, which must be approved by the companies’ shareholders and Harcourt bondholders, Harcourt would become a subsidiary of General Cinema. It would be headed by 42-year-old President and Chief Executive Peter Jovanovich. He is the son of longtime Harcourt Chairman William Jovanovich, who is retired.

The 52-year-old Herrington, secretary of energy in the Reagan Administration, will leave Harcourt when the sale is completed.

The new offer will give Harcourt common and preferred shareholders 75 cents in General Cinema stock for each Harcourt share they own. The original bid was $1.30 a share in cash.

Bondholders will receive 47 cents to $1 for every $1 in face value of their bonds. The original offer would have paid them 32 to 93 cents per $1 face value--a deal that many bondholders rejected.

At least 90% of bondholders must approve the transaction for the deal to proceed, the companies said. General Cinema has reached agreement with holders of a “significant percentage” of Harcourt’s bonds to tender their holdings.

In all, shareholders will get about $100 million in stock, while bondholders will receive about $1.1 billion in cash, based on a 90% acceptance rate for the offer. General Cinema also will assume some of Harcourt’s liabilities.

Despite the size of the transaction, which recalls the takeover heyday of the ‘80s, the General Cinema offer is more a deal of the ‘90s. The buyers must make do without the last decade’s financing instrument of choice: the now-discredited junk bond.

General Cinema will pay for the Harcourt purchase out of a $1.6-billion cash treasure trove accumulated by selling its soft-drink bottling operations to Pepsico in 1989, followed by the sale of a 16% interest in Cadbury Schweppes PLC.

Wall Street and the junk bond market responded enthusiastically to the announcement. On the New York Stock Exchange, General Cinema’s stock closed at $22.50, up $1.625, while Harcourt’s stock ended at 56.25 cents, up 12.5 cents.

The junk bond market showed confidence that the deal will be completed, with Harcourt bonds trading near or above their offering prices, said David Feinman, a trader with Jefferies & Co.

Herrington said an Aug. 15 deadline set by General Cinema hastened the deal’s consummation. “General Cinema was willing to walk away from the deal,” Herrington said.

At a Glance General Cinema Main businesses: theaters, specialty retail stores Employees: 22,700 Stockholders: 56,000 Headquarters: Chestnut Hill, Mass. Thur. close: $22.50+1.625 52-week stock range: $24.75--$16.50 Quarter ended April 30: Revenue in millions of dollars: 1991: $648.6 1990: $642.7 Net earnings in millions of dollars: 1991: $27.1 1990: $29.7 Per share: 1991: $0.37 Per share: 1990: $0.40 6 months ended April 30: Revenue in billions of dollars: 1991: $1.2 1990: $1.1 Net earnings in millions of dollars: 1991: $56 millions 1990: $49.8 million Per share: 1991: $0.76 Per share: 1990: $0.68

Harcourt Brace Jovanovich Main Businesses: publishing, insurance Employees: 5,800 Stockholders: 6,400 Headquarters: Orlando, Fla. Thur. close: $0.56 +12.5 cents 52-week stock range: $2.25--$0.37 Quarter ended June 30: Revenue in millions of dollars: 1991: $358.3 1990: $348.5 Net loss in millions of dollars: 1991: -$26.4 1990: -$23 Per share: 1991: -$0.41 Per share: 1990: -$0.39 6 months ended June 30: Revenue in millions of dollars: 1991: $638.5 1990: $625.4 Net loss in millions of dollars: 1991: -$105.13 1990: -$94.94 Per share: 1991: -$1.54 Per share: 1990: -$1.47 Source: Company reports