Carolco Drops Merger Talks With Live : Entertainment: The company cited ‘current market conditions’ for withdrawing from the merger proposal.
Two weeks after announcing a tentative merger accord, Carolco Pictures Inc. said Tuesday that it had suspended talks with Live Entertainment Inc.
In a statement issued after the close of stock trading, Carolco said that “given current market conditions, a merger at this time would not be in the best interest” of its stockholders.
After Carolco’s announcement Tuesday, Live said it was withdrawing its merger proposal.
Carolco, the Los Angeles-based producer of the blockbuster film “Terminator 2: Judgment Day,” already owns 53% of Live, a Van Nuys videocassette distributor.
The announcement capped several days of growing uneasiness about the proposed merger, reflected in sharp drops in the stocks of both companies.
Since the terms of the merger were revealed Nov. 19, Live’s stock has plummeted 41%, closing Tuesday at $5.875, down $1.375. Carolco, which traded around $8 a share when the companies started merger discussions last June, closed Tuesday at $3.25, up 12.5 cents.
Alan Hirschfield, who took over as Live’s chairman last week after the resignation of Wayne Patterson, said he was “disappointed” that the deal wasn’t going through. Both Hirschfield and Carolco Chairman Mario F. Kassar said they would be open to resurrecting merger discussions in the future but offered no assurances that they would do so.
Analysts said the collapse of the pending merger was related to the decline in Carolco’s stock and the terms of the complex and murky stock-swap deal.
For every share of Live stock, investors were to receive at least $14 worth of stock in a new company to be formed by the merger. The $14 would represent 2.5025 shares of the new company.
If the market value of the 2.5025 shares was less than $14, the difference was to be made up with “contingent value rights” that would entitle the investor to either cash, securities, or some combination of both--although neither company publicly announced those details.
Carolco shareholders, meanwhile, were to swap their shares one-for-one for shares in the newly merged company.
The idea behind the merger was to offset Carolco’s volatile movie-making business with a steady source of earnings and cash flow from Live’s videocassette sales. Live, meanwhile, would be assured a supply of films to release on video.
But as Carolco’s shares continued to fall, ever more stock in the new company would have had to be issued to Live shareholders to make up the $14 a share they were guaranteed.
“With the merger falling apart, it’s probably better for Carolco at this point,” said analyst Steven E. Hill at Sutro & Co. in San Francisco.
Analysts attributed the declines in both companies’ stock prices to betting by stock speculators that the deal would crumble, investor concerns about the merger and the deteriorating financial condition of both concerns.
Live reported a $40.5-million loss for the third quarter and Carolco a $43.7-million loss in the same period.
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