COMPANY TOWN : Friendly Takeover : How a USC Grad Scared Up the Means to Buy Casper

Last Sunday, Jeffrey A. Montgomery attended the world premiere of “Casper.” The chairman and CEO of Harvey Entertainment Co., which owns the Casper character as well as Baby Huey, Richie Rich and Wendy the Witch, had passed up earlier opportunities to see the movie.

Seeing it for the first time at a star-studded Hollywood event was a symbolic moment, the culmination of what had at first seemed a quixotic quest. “It was like Christmas day and I didn’t want to open my presents early,” said the boyish 30-year-old.

Over the years, major entertainment concerns such as Walt Disney, MCA and King Features had tried and failed to buy the family-owned Harvey. But six years ago, fresh out of USC, Montgomery managed to snare the prize. It’s a tale of luck, timing, an Arabian prince and, most of all, chutzpah.

Montgomery graduated from the USC School of Business and got his master’s through the school’s Peter Stark film graduate program, but rather than compete with other producers “who are more aggressive and well-connected, like Scott Rudin,” he decided to enter the “character management business.” Recognizing the value of trademark characters such as those in “Star Wars” and “The Little Mermaid,” he viewed the movies as “two-hour infomercials for related products.”

The problem was that companies such as Disney, Warner Bros. and Hanna-Barbera already controlled most of the recognizable characters. Creating new ones requires a lengthy and costly development process, and for every Ninja Turtle there are dozens of others that fail.

Having grown up watching “Casper” cartoons on TV, Montgomery noticed that the little ghost had disappeared from view. After some research, he tracked down New York-based Harvey Entertainment.

The comic book publisher, which had bought the rights to Casper, Richie Rich and others from Paramount in 1959 for $3 million, had done little to exploit its library of characters. Its founders, Alfred, Leon and Robert Harvey, were dead and there was little love lost among the heirs. Every buyout offer proposed by President Alice Harvey was rejected by her sisters-in-law, Montgomery said.

This is where Montgomery’s luck comes in. “I got the company number through directory assistance,” he said. “When I asked for the president, I was told she was out and [was] passed on to Alan Harvey, her nephew.” If he had gotten through to Alice, Montgomery said, he probably would have come up against the same brick wall as other suitors.

The second part of the story involves timing. When Montgomery asked whether the company’s assets were tied up, Alan Harvey informed him that the 20-year TV distribution agreement was about to expire, and there were few outstanding third-party agreements. And yes, Harvey said, he would be interested in selling.

“But I had a credibility problem, right?” Montgomery said with a laugh.

Credibility may have been a problem, but chutzpah wasn’t. Montgomery flew to New York, persuaded the manager of the Mayfair/Regent Hotel to let him rent the presidential suite for the afternoon and took the Harvey family to lunch at Manhattan’s plush Le Cirque.

“I gave the maitre d’ a credit card before the lunch with a 20% tip. So no bill arrived afterwards. That’s something they don’t teach you in business school, but the Harveys were impressed. Then we retired to the presidential suite. I’d also hired a butler.”

The Harveys asked for $8 million. “I’m not sure quite why that figure,” said Montgomery, who had valued the company at almost twice that. With two-thirds of the family on his side, he had a deal. New York law also allowed a “lockup,” meaning the family could not entertain subsequent offers that came in from MCA and Broadway Video.

Montgomery offered $3.4 million in cash and $4.5 million in promissory notes. This from a 24-year-old film school graduate.

Montgomery did not ask his father, James F. Montgomery, chairman of Great Western Financial Corp. for the money. Instead he turned to Prince Ahmad Bin Khalid Al-Saud of Saudi Arabia’s royal family, a classmate with whom he had maintained close ties. For $3 million, the prince became the principal stockholder in Harvey Entertainment.

Immediately after buying the company, Montgomery went to a thwarted bidder, MCA/Universal, and agreed to sell 20% of the company for $3 million. “I was very happy to invest in a company which we had wanted to own all of,” said Universal Chairman Tom Pollock. “Jeffrey did something we couldn’t. He brought the arguing factions of the family together and got them to sit down and agree to a sale.”

In June, 1993, Montgomery completed a public offering of 1.38 million shares at $7.50 per share, bringing in money that was used to retire debt, produce new cartoons and restore existing properties. Prince Ahmad remains Harvey’s main shareholder, followed by MCA and Montgomery himself. Harvey Entertainment shares, which closed at $16 on Nasdaq on Thursday, have nearly doubled from a low of $8.25 in 1994.

Now based in Santa Monica, Montgomery and his 10-person staff have been making business alliances for the various properties. The comic books, not a large revenue source, were licensed to Marvel Comics. For film and TV production, Montgomery turned to the major studios.

“You either get into business with the major studios or you eventually go bankrupt,” he said. “You can’t compete with them for efficiency, and they have a better infrastructure.”

MCA bought the rights to the movie version of “Casper,” which opens today, for Steven Spielberg’s Amblin Pictures. Through a pre-existing option agreement, Warner Bros. produced a film version of “Richie Rich” starring Macaulay Culkin. The film, released last Christmas, grossed only about $36 million.

One major potential profit center is television syndication. New episodes of “The Baby Huey” show have become a hit in syndication over the past year. To generate future animation, Montgomery created the Universal/Harvey Animation Studios, a co-venture with MCA to produce cartoons, including a new “Casper” series set to premiere on Fox TV, with a two-year minimum guaranteed run.

Merchandising and licensing--not filmmaking--is where the company expects to make most of its money, Montgomery said. Those areas accounted for $3.5 million, or 62%, of all 1994 revenue. The “Casper” film will accrue profits to Harvey only if grosses reach the $200-million mark. But the company retains 36% of all merchandising revenue. MCA takes only a distribution fee.

With more than 120 licensees, including Tyco Toys and Gerber Products, merchandising could be steady and long-lived if “Casper” hits it big. After the film is released, the original “Casper” cartoons will come out on video through MCA Home Video. Montgomery notes that 2 million units of the old “Little Rascals” films were sold following the release of MCA’s feature film version last summer. Next comes the video release of the “Casper” film. Then, and potentially most important, the new “Casper” TV series. (The “Batman” animated series has generated the lion’s share of that property’s $1.3 billion in merchandising.)

Universal is developing a movie version of “Baby Huey,” possibly for actor Chris Farley. After that, Montgomery is looking at film projects based on the Little Audrey and Wendy the Good Little Witch characters. Which still leaves scores of other characters, such as Little Lotta, Hot Stuff, Little Dot.

The success of the “Casper” film and TV series is key to Harvey’s continued growth, serving as the main spur for future films, merchandise and TV programs. “We want the networks to think of us as a major supplier,” Montgomery said.

His chances are good, he reasons: “Alfred Harvey was 24 when he started the company. I was 24 when I bought it.”

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Selling Casper

Harvey Entertainment Company, which holds the rights to several well-known animated characters including Casper and Richie Rich, saw its revenue shift in 1994 from comic book publishing to merchandising. How each of the company’s segments contribute to revenue:

1993 REVENUES Merchandising ($52,000): 1% Filmed entertainment ($1.3 million): 28% Comic book publishing ($3.2 million): 71%

1994 REVENUES Merchandising ($3.5 million): 62% Filmed entertainment ($1.5 million): 27% Comic book publishing ($635,000): 11%

Source: Company reports. Researched by JENNIFER OLDHAM / Los Angeles Times