A week after Michael S. Ovitz dropped the bombshell that he was leaving the agency business to become the president of mighty Walt Disney Co., the new order at Hollywood’s biggest talent house--Creative Artists Agency--is taking shape.
A strategy group of nine CAA agents, a quintet known as the Young Turks and four of their senior brethren, are expected to close a deal this week to buy the 20-year-old agency. The Turks are Jay Moloney, Richard Lovett, David (Doc) O’Connor, Kevin Huvane and Bryan Lourd, and the four veterans are motion picture department heads Jack Rapke and Rick Nicita, TV department head Lee Gabler, and Tom Ross, who heads the music division.
Represented by Martin Lipton, one of Wall Street’s heavy-hitting mergers-and-acquisitions attorneys who also counted MCA among his clients for about 25 years, the nine intend to hold CAA intact and set its new course in the post-Ovitz era. A new management hierarchy is expected to be decided on this week, though titles are still very much up in the air.
While the structure for a buyout has been largely worked out, some critical issues remain.
In particular, the would-be owners must figure out how to keep happy a number of other star, senior CAA agents who otherwise could get lured away by the competition. Such agents as Fred Spector, Mike Menchel, Jane Sindell and Bob Bookman could be brought into the buyout deal as minority shareholders.
Among them, these agents represent some of Hollywood’s most important stars and filmmakers, including Robert DeNiro, Al Pacino, Robin Williams, Anthony Hopkins, Oliver Stone, Demi Moore, Glenn Close, Jeremy Irons, Jon Avnet, Richard Donner, Is mail Merchant and James Ivory, and writers Michael Crichton and Eric Roth.
Spector and Menchel are said to make salaries of more than $1 million a year each.
The succession of ownership calls for the would-be principals to buy 100% of the shares currently controlled by Ovitz, who owns 55%, and Ron Meyer and Bill Haber, who each hold 22.5%. There are no banks or outside partners involved, according to sources.
The value of the those shares has been a well-kept secret, but sources say it is far less than the $200 million that has been mentioned in the media. Some believe it could be less than half that amount.
Essentially the buyout structure is an “earn out” arrangement, meaning that as money from clients’ movies or TV series flows in, the three will be paid over a number of years. It is unclear whether this kind of arrangement, which alleviates the new partners from being saddled with bank debt, will raise any conflict-of-interest issues for Ovitz and Meyer, who are both going to be buyers at competing studios.
A portion of the receivables from deals concluded while the three were at CAA is to be put in a blind trust to be paid out over time. The remainder will stay in CAA’s coffers to help run the company.
If the receivables aren’t high enough, the new partners may have to sacrifice some of their annual bonus money.
There is also the question of who will be responsible for the mortgage on the I.M. Pei building, which houses CAA at the southeast corner of Wilshire and Santa Monica boulevards. It is owned by W & S Properties, a partnership made up of CAA’s principals, including Ovitz, Meyer and Haber. The partnership also owns the adjacent building at 9800 Wilshire.
Sources say the new CAA partners will sign a long-term lease. This too may raise a conflict-of-interest question, since major buyers would be landlords of major sellers.
Another question is a bank line of credit CAA has for working capital, an amount said to be as high as $70 million. In the past, sources say, Ovitz, Meyer and Haber have personally guaranteed the loan, and lenders are certain to want the same kind of protection going forward.
It’s unlikely, however, that CAA’s new partners can do that, given that they have yet to amass the personal fortunes of their predecessors. One source suggested that Ovitz, Meyer and Haber will probably continue to guarantee the loan, but acknowledged that such an arrangement might pose a problem if the talent guilds or a CAA competitor challenged it as a conflict of interest.
Meyer became president of MCA earlier this month and Ovitz assumes his new post as president of Disney on Oct. 1. Haber, who flew into town last week from his vacation home in France to attend a key meeting at which the distribution of shares was discussed, agreed at that time to be bought out, sources said. He has returned to his French chateau and will reportedly divulge his plans when he returns after Labor Day.
The Turks and their four colleagues are part of a 12-person transition team that was put together by Ovitz to figure out the new management structure and the buyout. The others include Sandy Climan, the agency’s chief strategist; CFO Bob Goldman, and Ray Kurtzman, head of business affairs.
It is widely believed that Climan will join Ovitz at Disney. Climan--known as something of a junior Ovitz--has worked at his boss’ side on a number of corporate deals, including a television venture with three regional phone companies, and consulting on such acquisitions and mergers as Matsushita’s purchase and sale of MCA and Sony’s purchase of Columbia/TriStar.
Goldman, who has been with CAA almost since its founding in 1975, publicly stated Sunday that he plans to stay at the Beverly Hills-based agency. No one knows about the intricacies of the agency’s finances and economic structure better than Goldman, which makes him very valuable to the would-be heirs.
Another hand-picked Ovitz executive, CAA’s publicist Anna Perez, has also reportedly been asked to join him at Disney and is seriously considering doing so. While she would serve Ovitz personally, his new boss, Disney Chairman Michael Eisner, would reportedly continue to rely on the company’s staff corporate publicist John Dryer. Perez, a Republican who served as press secretary to former First Lady Barbara Bush before joining CAA in 1993, maintains strong ties to Washington and could help Disney’s relationships on Capitol Hill.
Sources said it was Ovitz, Meyer and Haber who identified the nine key players on the CAA strategy team as those most likely to ensure that the company will stay together and flourish.
The Turks, who pull down salaries of anywhere from $500,000 to $1 million a year, represent some of the most powerful clients in Hollywood, including such hot young stars as Brad Pitt, Hugh Grant and Uma Thurman, and such high-profile filmmakers as Steven Spielberg, Martin Scorsese, Tim Burton, Robert Redford and Tony Scott.
The highly respected Rapke and Nicita also represent key talent. Rapke’s list includes filmmakers Ron Howard, Brian Grazer, Robert Zemeckis and Joel Schumacher; Nicita represents such stars as Al Pacino and Anthony Hopkins.
Times staff writer James Bates contributed to this report.