Ovitz Decides Against Deal for Him to Take MCA Helm : Entertainment: Creative Artists chairman ends 2-month drama. He reportedly was offered $250 million.

The done deal wasn’t done after all.

Talent agent Michael S. Ovitz, widely regarded as the most powerful man in the entertainment industry, Monday ended a two-month-long drama that had captivated Hollywood when he told his staff at Creative Artists Agency that he is staying put rather than jumping ship to run entertainment giant MCA Inc. for new owner Seagram Co.

Sources close to Seagram Chief Executive Edgar Bronfman Jr. said that Bronfman had hoped to sign Ovitz this week after the beverage and liquor giant formally transferred $5.7 billion Monday morning to gain 80% of MCA--owner of Universal Pictures, Universal Studios theme park and MCA Music--from Japanese electronics firm Matsushita Electric Industrial. Universal’s movies include “E.T.,” “Jurassic Park” and the current hit “Casper.”

But sources late last week suggested that discussions had become highly fragile--and that Ovitz was wavering--amid a full-court press by Bronfman, who wanted Ovitz for the job and was said to be luring him with a package valued at about $250 million.

The drama ended around 2 a.m. Monday in New York after about 10 days of serious talks.

The unraveling came as a shock to an industry that over the past two weeks had come to accept Ovitz’s departure from the agency business as fait accompli .

Rival agencies and studios already were preparing for a new era in which the fault lines of power would shift dramatically. Competitors were beginning to nibble away at CAA, where Ovitz is chairman, in an effort to entice clients to switch representation.

The feverish speculation about Ovitz’s future is testimony to the unique position the agent has carved out in Hollywood. No longer merely a talent agent, Ovitz has sold his vision for the future of the entertainment industry to some of the top figures in corporate America. He has engineered the sale of entertainment conglomerates and advised Fortune 500 companies on their marketing plans.

Indeed, his decision simply to remain in his job at CAA--which he and his partners founded 22 years ago using card tables as desks and their wives as receptionists--is considered to have huge repercussions.

Ovitz arguably has been the person most responsible for shifting the balance of power over the past two decades from the studios and television networks to stars, directors and agents. Studio executives have often complained that the balance has shifted too far, driving up the cost of filmmaking and marketing to an average of more than $50 million per picture.

CAA is widely viewed as the industry’s top talent agency, representing such stars at Tom Hanks, Sylvester Stallone, Barbra Streisand and Brad Pitt, as well as such directors as Steven Spielberg and Tim Burton. Earlier this year, CAA negotiated a record $20-million deal for Stallone to star in a still-to-be-determined film for Savoy Pictures.

In the late 1980s, Ovitz began to diversify CAA from the talent business, brokering the sale of Columbia Pictures to Sony Corp. and MCA to Matsushita. The company entered the advertising business by designing ads for Coca-Cola, and is advising three regional telephone companies on an interactive television and information venture.

In building CAA, Ovitz has become a celebrity in his own right. Although he rarely speaks publicly, his actions often generate as much press as do his clients, even more so during the current media frenzy. He is on the cover of the Newsweek magazine that hit the stands Monday.

One entertainment executive last week suggested that the frenzy over whether Ovitz would leave had come to resemble the observers watching anxiously for the puff of white smoke to emerge indicating that the College of Cardinals has picked a new Pope.

Representing Ovitz was prominent Los Angeles lawyer Ronald Olson at Munger, Tolles & Olson, who had handled some personal legal matters for Ovitz in the past. Representing Seagram were lawyers at the New York firm Simpson Thacher & Bartlett, led by partner Kenneth Edgar. Ovitz was home in Los Angeles, with Bronfman in New York.

Sources said the deal failed for several reasons.

For starters, luring Ovitz would have been enormously expensive for Seagram, and highly complicated as well. In addition, Ovitz, a notoriously aggressive negotiator, would have required an exceptional level of autonomy from Seagram.

The deal would have required structuring a way for Ovitz to divest his majority stake in CAA while minimizing tax consequences. Some believe that valuing CAA was nearly impossible. “How do you create a value for CAA without Michael Ovitz?” asked one studio chief.

Sources close to Ovitz, however, suggested that cutting his ties to CAA would have been a difficult decision personally, although he could have found a way to make it work. “If he wanted to make the deal, he could have,” one source said.

Throughout the process, Ovitz was known to be wavering, expressing misgivings to those close to him, sources said. Late last week, he and his two partners, Ron Meyer and Bill Haber, were said to have concluded that a deal probably would not happen, sources said.

Analysts said that a breakdown of the deal might not be so bad for Seagram, though some investors favored bringing Ovitz aboard to rejuvenate MCA.

“I think it’s better for shareholders not to pay hundreds of millions of dollars,” said Cowen & Co. analyst Harold Vogel, who last week recommended Seagram stock to investors.

But it also leaves MCA in limbo in an industry where uncertainty over who will eventually run the show can kill potential deals. Bronfman had wanted his team in place right away.

Friends of Ovitz are known to have been advising him for some time that the fiercely independent executive might find it difficult working as an employee of the Bronfman family, which controls Seagram.

In addition, some also suggested that it might be difficult for him to work with DreamWorks SKG, the new studio founded by former Walt Disney Studios Chairman Jeffrey Katzenberg, music mogul David Geffen and Spielberg.

Bronfman is working hard to sign a distribution deal with DreamWorks. Although Ovitz represents Spielberg, both Katzenberg and Geffen have been at odds with Ovitz in the past, although they had assured Bronfman they could work with Ovitz. All are strong personalities who will maintain independent ties to Bronfman.

Some of Ovitz’s closest friends have suggested to him that he might want to wait for a potentially better opportunity, such as a chance to run Time Warner should Chairman Gerald M. Levin falter. Levin is under pressure to boost the company’s stock price and in recent days has come under fire over the company’s controversial rap records. Time Warner spokesmen have said that Levin is not in danger of losing his job.

CAA declined comment Monday on the Ovitz negotiation, as did Seagram. Bronfman was flying to Los Angeles on Monday and was scheduled to have dinner with current MCA President Sidney J. Sheinberg, who is under contract to MCA until the end of the year.

Sheinberg is expected to continue to run things until Bronfman finds new management. Sheinberg eventually is expected to take a lucrative deal to head a Seagram-financed film and television company. Sheinberg last Friday said that he is still in talks. Current MCA Chairman Lew Wasserman also is expected to step aside for Bronfman’s management.

A few skeptics in the industry speculated Monday that talks between Bronfman and Ovitz could be rekindled later, although sources close to both CAA and Bronfman denied it. Others close to Ovitz were skeptical, saying that he would be risking a huge backlash from his agents and clients.

“You don’t tell your staff or clients it’s over if you plan to do it again,” said one executive with close ties to Ovitz.

Ovitz’s announcement to CAA agents and staff on Monday was greeted with a standing ovation.

It remains unclear who will run MCA. Names that surfaced around Hollywood continued to be familiar ones.

The name mentioned most often Monday was Warner Bros. Co-Chairman Terry Semel. In an interview with The Times last week in Montreal, Bronfman named Semel as a Hollywood executive he admires.

In a statement issued through his office, Semel said that he “has a contract with Warner Bros. and is looking forward to enjoying yet another record-breaking year with the company.”

Some sources have suggested that Seagram, which is Time Warner’s largest shareholder with nearly 15%, might have sufficient influence to negotiate a way for Semel to get out of his contract. Time Warner executives are concerned that Bronfman might sell the stake to a hostile buyer. Sources suggested that Bronfman might assure Time Warner he won’t do that if they cooperate in negotiating a Semel deal.

Another name often mentioned is former Fox Inc. Chairman Barry Diller, a close friend of Bronfman. But Diller is known to still covet owning a broadcast network.

In any event, Bronfman is expected to become a highly visible presence at MCA. In the interview last week, he confirmed that he has been looking for a home in Los Angeles because he expects to spend a lot time here over the next year or two.

MCA is considered a prime rebuilding candidate. Its television division, for example, is a sluggish performer. It also has the troubled upcoming film “Waterworld,” whose budget has reportedly soared to $180 million.

“This is a long-term rejuvenation of the company. The assets have been undervalued,” Vogel said.

* STILL IN TURMOIL: Questions remain about CAA, agency business. D1.