Company Town : Is Kluge ‘Bulking Up’ for a Sale?

There are 6.7 billion good reasons Hollywood can’t ignore John Kluge, even when virtually everyone in the business seems baffled by his latest moves.

Anyone who has that many dollars to his name is to be taken seriously, which is why it’s interesting that a guy who was burned so badly in Hollywood is back in the hunt, albeit in a restrained way.

On Wednesday, Kluge’s Metromedia International Group Inc. agreed to buy the struggling independent Samuel Goldwyn Co. in a $115-million deal involving stock and the assumption of debt. He’s also bought Motion Picture Corp. of America, producers of the Jim Carrey hit comedy “Dumb and Dumber,” and later this year plans to buy Alliance Entertainment Corp., a distributor of recorded music, in a $533-million stock deal. In addition, he’s jump-starting Orion Pictures’ film production, an activity that was mothballed after Orion went through a bankruptcy reorganization in 1992.

The 81-year-old Virginian didn’t get to be America’s third-wealthiest individual on the Forbes 400 rich list by throwing good money after bad. But skeptical Hollywood executives seem to think he may be doing that, given the herculean task it would take to rebuild Orion into a major force.

“You’d think Orion would have taught him a lesson,” said one entertainment financier.

Added a former Orion executive who admits to being baffled, “He’s not enamored with entertainment. He’s not a guy who does this for the fun of it.”

What’s more, Kluge’s entrance into the Hollywood studio business in the first place wasn’t exactly planned. Kluge, a trusted friend of the late Orion chairman Arthur Krim, served as a white knight when he successfully battled Viacom Chairman Sumner Redstone in 1986 for control of the studio. Redstone, of course, went on to land a much bigger fish in Paramount Communications.

The operative words for what Kluge is doing may be “bulk up,” as in building Orion and other assets with a larger purpose in mind. Indeed, after the Goldwyn acquisition, the company will boast one of the bigger libraries around, with about 2,000 titles, including such recent hits as “Dances With Wolves” and “Silence of the Lambs” and such Goldwyn films as “Much Ado About Nothing” and “The Madness of King George.” One side effect of the Goldwyn deal will certainly be to add Kluge’s name to the list of potential suitors when other Hollywood assets, notably Metro-Goldwyn-Mayer, eventually go on the market.

The question being asked, however, is whether Kluge is back for the long haul, building a long-term business that would restore the Orion name, which has been tarnished by bankruptcy and its relative inactivity. Or is this a lengthy exit strategy from a company he has sunk an estimated $400 million into over the years, with the goal to build it to a point where it’s attractive enough to sell?

Stuart Subotnick, Kluge’s right-hand man since the late 1960s, adamantly denies that Kluge is a seller. “We build businesses. We have always done that,” he said.

Subotnick also notes that Kluge has had ample opportunity to abandon Orion.

“We could have walked away from the company in bankruptcy,” he said. “We decided that the company was a valuable asset and that the creditors deserved 100% on the dollar. We spent time from 1992 through 1995 paying back those creditors and keeping the value of our assets not only alive, but stable.”

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Subotnick also says the movies and TV shows Metromedia owns and is buying will be valuable in building programming in Eastern Europe, where Kluge was in on the ground floor in building wireless cable television systems.

The renewed activity comes after Kluge orchestrated a four-way merger of Orion and three other companies he controlled to form parent Metromedia International Group in November. In doing so, finances were restructured to allow Orion to use cash for production. Previously, cash Orion generated was spoken for, with about $260 million used to pay off creditors. A fresh $135-million loan from Chemical Bank was arranged, as well as a $50-million revolving line of credit for production and distribution that Kluge guarantees.

The fact that Orion has been revived at all is something of a miracle. The company was founded by five executives in 1978 who had fled United Artists--including Krim and veteran studio executive Mike Medavoy, who now heads the new Phoenix Pictures production company.

Over the years, Orion became a producer of quality films through alliances with such directors as Woody Allen and had a remarkable batting average at the Academy Awards. Over the last 12 years, four of the best-picture Oscars went to Orion films, for “Silence of the Lambs,” “Platoon,” “Amadeus” and “Dances With Wolves.” Last year’s best-actress award went to Jessica Lange for “Blue Sky,” an Orion film that gathered dust on a shelf for four years because of the firm’s financial problems before it was finally released.

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But the company lived hand-to-mouth, and despite having so many hits was burdened by high overhead. It also never seemed to reap the benefits of its hits because it had sold off too many pieces of the pictures to raise money.

Len White, who runs Orion for Kluge, says the company’s strategy will be to aim for lower-priced pictures, with Orion probably investing less than $10 million and, more typically, about $5 million. To that end, the company is putting its production operations into the hands of producers Brad Krevoy and Steve Stabler, who joined the company with the purchase of Motion Picture Corp. of America and who are known for specializing in lower-budget films.

All told, Orion is aiming to eventually release 12 to 20 pictures a year and to actively acquire. Indeed, at the recent Sundance Film Festival, Orion was a shopper. Kluge also is expected to wring out cost savings, such as combining the distribution operations of Orion and Goldwyn.

Don’t expect Orion to be bidding $20 million for a star’s services. Subotnick says the company’s first goal will be to be fiscally conservative, suggesting he and Kluge will be keeping the Hollywood operations on a tighter leash than they did before.

“We are going back into production in a--we hope--more calculated manner. We tend to be more fiscally oriented than Orion was in the past. It’s not awards we are looking for, it’s really operating profit and return on capital,” he said.