Matsushita to Sell 80% of MCA to Seagram Co. : Business: Distiller to pay about $7.1 billion. Japanese owner and Hollywood giant clashed often over five years.
Electronics giant Matsushita Electric Industrial has agreed to sell 80% of MCA Inc. to beverage giant Seagram Co. for about $7.1 billion, sources said, effectively ending an acrimonious five-year marriage in which the cultures of a Hollywood institution clashed repeatedly with those of its conservative Japanese owner.
The deal, which sources said would probably be formally announced as early as Sunday, follows a record $8.8-billion sale Thursday by Seagram of 156 million shares of chemicals and oil giant DuPont, a move that enables Seagram Chief Executive Edgar M. Bronfman Jr. to finance the MCA deal and fulfill his long-held ambition of becoming a major player in the entertainment industry.
Bronfman, who is based in New York, is the grandson of the founder of the Montreal-based distiller, which his family controls. He has long been enamored with the entertainment business, producing the 1981 film “The Border” with Jack Nicholson and dabbling as a songwriter, writing such tunes as “Whispers in the Dark.”
Bronfman still faces the major question of deciding who will manage MCA, which is the parent of Universal Pictures and other entertainment businesses. The company’s top executives, Chairman Lew R. Wasserman and President Sidney J. Sheinberg, are expected to leave, although sources suggested that they could be asked to stay in charge during a transition. Both are angry that they were kept in the dark during the talks.
Matsushita’s sale of a majority of the company marks a watershed event in the about-face that Japanese companies have made since buying U.S. assets in a wild shopping spree in the late 1980s and early 1990s. Purchases ranged from Hollywood studios such as MCA and Columbia Pictures to such crown jewels as Rockefeller Center in New York and the Pebble Beach golf course in Northern California.
Matsushita’s acquisition of MCA in particular, coming on the heels of Sony’s purchase of Columbia for $3.4 billion in 1989, triggered widespread fears that America’s entertainment business would soon be in the hands of wealthy foreign industrial concerns.
Instead, Hollywood has proved full of land mines, with Sony Corp. taking a $2.7-billion write-off last fall on its Hollywood investment and Matsushita clashing repeatedly with MCA’s American managers. Hollywood executives speculated that Sony might follow Matsushita’s example. Sources at Sony denied that the company plans to do so.
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Matsushita, which would not comment on the deal, is known for making televisions, videocassette recorders and other products sold under brand names such as Panasonic, Quasar and Technics. The Osaka company’s original idea in buying MCA was to ensure that new video and music formats, such as the digital videodisc, would be well supported by new films. By keeping a 20% share of the company, Matsushita is expected to achieve that goal.
But MCA managers and other Hollywood executives believe that Matsushita bought MCA largely in reaction to the purchase of Columbia by archrival Sony. Hollywood executives say the company did not understand what it was getting into, and never appreciated the quirky economics and culture of the entertainment industry.
To some extent, Matsushita’s experience in the entertainment industry is no different than that of non-Japanese investors that have been burned in Hollywood, as Coca-Cola was with Columbia and Transamerica with United Artists.
Indeed, by comparison to other investors, Matsushita did well. The price that Matsushita is expected to get--which values MCA at close to $9 billion--marks a significant dollar appreciation from the $6.59 billion that the company paid for all of MCA in 1990.
With the weakness of the dollar against the yen during the past five years, however, that price would not be close to the $10.4 billion that Matsushita’s 1990 yen purchase price would be valued at today. Whether Matsushita would have to record a loss is uncertain, analysts said, since the company may choose to reinvest the dollars in the United States rather than convert them into yen.
Analysts consider the price for MCA steep, based on annual operating profits of slightly more than $400 million. Still, the price that Bronfman is willing to pay reflects the view of entertainment companies and their libraries of films and TV shows as long-term, irreplaceable assets rather than as immediate profit-earning entities.
Last year, Viacom Inc. paid $10 billion to buy Paramount Communications, an amount regarded as high by analysts. MCA’s assets include Universal Pictures, MCA Music, Geffen Records and the Universal Studios theme parks. Its library includes films ranging from Alfred Hitchcock classics such as “Psycho” to the two top-grossing films of all time, Steven Spielberg’s “E.T.--The Extra-Terrestrial” and “Jurassic Park.”
The most persistent question Thursday was who will run MCA. Sources said Bronfman may quickly offer a large chunk of money to smooth the bruised feelings of Wasserman, 82, and Sheinberg, 60, so that they will stay for a transition.
Sheinberg confirmed that he spoke briefly with Bronfman by telephone, but said it was “not a substantive conversation.”
Sources said Wasserman received a call Wednesday night from Bronfman’s father, Edgar Bronfman Sr. Reached Thursday, Wasserman declined to comment.
Wasserman is a Hollywood legend and probably its most revered executive, with a career dating back to the 1930s. A onetime agent, Wasserman represented future President Ronald Reagan, among other stars.
Sheinberg declined to speculate on whether he would stay and suggested that he is sticking with his previous plan, which is to leave when his contract expires at the end of the year if MCA managers are not given enough flexibility to compete in the fast-changing media business.
“I’m living out my contract,” he said.
MCA executives are skeptical that Sheinberg and Wasserman will stay, given the humiliation they went through by being kept in the dark about the sale, and the prospect that the 39-year-old Bronfman Jr. will be a hands-on owner.
News of the impending sale was greeted with mixed feelings by MCA executives. They were relieved to be rid of Matsushita’s control and welcomed an investor that they believe will want to spend money on the company.
But they also expect close supervision by Bronfman, who has long been fascinated with entertainment. The movie Bronfman produced, “The Border,” was distributed by MCA.
MCA executives last year became frustrated by Matsushita’s unresponsiveness to proposals that the company expand. Among the proposals nixed by MCA were a potential bid for Virgin Records, which eventually sold to Great Britain’s Thorn EMI, expansion of its theme parks, and joining in a bid for CBS with ITT Corp.
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Those tensions boiled over last fall, when Sheinberg went public with his complaints. Hollywood executives believe that Sheinberg and Wasserman overplayed their hand when the feud became public, embarrassing a highly conservative company from a country where saving face is a key element of corporate culture.
The name of Creative Artists Agency Chairman Michael S. Ovitz has been the most frequently mentioned in Hollywood as a possible chief for the entertainment conglomerate. Ovitz’s spokeswoman, Anna Perez, said Thursday that the powerful agent does not want to leave CAA.
Another open question is what becomes of the MCA plan to strike an alliance with the new DreamWorks SKG studio being formed by director Steven Spielberg, former Walt Disney Studios Chairman Jeffrey Katzenberg and music mogul David Geffen. Spielberg, who made such films as “Jurassic Park,” “Schindler’s List” and “Jaws” for MCA, considers Sheinberg his mentor and has his Amblin firm’s offices on the studio’s lot.
But sources said that with the turmoil at MCA, Time Warner’s Warner Bros. unit now appears to have the edge in landing the team and housing it at the Warner Ranch in Burbank.
Bronfman’s purchase will have a secondary consequence. He will undoubtedly divest his nearly 15% stake in Time Warner, worth about $2 billion. Selling the stock in the open market would no doubt send Time Warner’s stock falling.
Other options for Bronfman include finding a major investor to buy his stock, or possibly swapping stock to Time Warner in exchange for assets that the company is trying to sell, such as its 21% stake in Turner Broadcasting System or certain cable systems.
For its 156 million DuPont shares--95% of its original holding--Seagram will receive $1 billion in cash, $8.3 billion in short-term notes and warrants valued by the companies at $440 million. The $9.74 billion works out to $53 a share in cash and $3 a share in warrants.
Although that appears to be a sharp discount from the $64.75 a share at which DuPont closed Thursday in New York Stock Exchange trading, a Seagram spokesman defended the price as fair. He noted that a transaction so large would be almost impossible to accomplish quickly on the open market.
In the wake of the news, DuPont shares jumped $1.50, to $64.75; Seagram fell 75 cents, to $27.875. And Time Warner eased 25 cents to $37.
Times staff writers Michael Hiltzik, Claudia Eller, Jon D. Markman and Greg Miller in Los Angeles, Leslie Helm in Seattle and David Holley in Tokyo contributed to this report.
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