PolyGram’s Challenge Is Separating Serious Bids From Press Releases

While it seems everyone and their mother are tossing their hats in the ring for PolyGram Filmed Entertainment, the number of bona fide bidders for the foundering movie company will undoubtedly turn out to be a select few.

Some of the most unlikely “suitors” include former Paramount executives David Kirkpatrick and Lucy Salhany, and newly unemployed NBC President Neil Braun and one of his longtime pals.

Kirkpatrick, once a high-profile studio executive, has flown way under the Hollywood radar since getting fired from Paramount in 1991 and becoming an independent producer. Salhany, who was also once a household name in the Hollywood TV community in senior posts at Fox and Paramount, hasn’t been heard from since resigning as head of UPN nearly a year ago.

Braun, whose expertise is in television rather than movies, was shockingly uninformed when queried about the professional endeavors of his partner, Martin Tudor, a talent manager, though he allegedly was venturing a bid of some $500 million with the guy.

“I’ve known Marty on a social basis for 10 years but we never discussed business,” Braun told The Times the day he simultaneously announced his departure from NBC and surprise bid for PolyGram.

A seasoned Hollywood cynic might say it’s come to a point where people are floating their names out there just to generate some publicity for themselves. After all, it’s a sure-fire way to get your name and mug on the front pages of the Hollywood trade papers. Just ask Braun and Salhany.

“It’s not about putting out an offer to buy PolyGram, it’s like putting out a press release saying ‘I’m available for a job,’ ” says one Hollywood vet. “It’s the best job application in the world.”

The source suggested that despite all the tire kicking, there will likely be “no more than three legitimate buyers who will end up making binding bids” for the film company, which went on the block in late May as a way for Seagram Co. to help pay down its pending $10.4-billion acquisition of music giant PolyGram from its Dutch parent, Philips.

About 10 companies have made nonbinding bids; others have expressed interest in making one. The list includes such foreign-owned companies as Canal Plus, EMI, Carlton Communications and Pearson, and American outfits such as Artisan Entertainment and Lakeshore Entertainment.

One popular scenario making the rounds is that some European media companies including Canal Plus and Carlton may form a consortium to buy the film company.

It is also rumored that Carlton--a commercial TV broadcaster--is in advanced talks with Seagram about purchasing PolyGram in a deal that would give Seagram a stake in the British company. Carlton would be particularly keen on PolyGram’s 1,500-title film library to program its TV operations.

The sale of PolyGram has sparked a political debate among politicians and filmmakers in Europe who would like to keep the studio out of the hands of the Americans.

Press reports have put the bidding at anywhere from $500 million on the low end to $1 billion, a number that includes debt. In addition to some internal operating debt, PolyGram has off-balance-sheet financing debt of $300 million.

One source suggested that confusion in the press over what the bid figures actually are “depends on who’s doing the spinning.”

Because at this point the bids are nonbinding, it’s also hard to determine who’s really serious and who, other than the obvious blue-chip companies, can actually pull off a sale financially. Beyond having enough for the actual purchase, a buyer must have the wherewithal to finance the $700 million to a billion a year it takes to fund production and marketing for a slate of movies and support a worldwide distribution operation.

No deadline has been set for final bids. PolyGram’s top management, led by President Michael Kuhn, is making detailed presentations to potential buyers (so far two have been made) that will continue through next week.

Goldman Sachs, which is advising Seagram on the sale, is sifting out the serious bidders from the looky-loos and giving the former access to PolyGram’s financial records.

Naturally Kuhn, a Cambridge-educated lawyer whose own future hangs very much in the balance at this point, is hoping for a buyer that intends to keep the film company operating with current management intact.

Since 1991, Kuhn has overseen the expansion of the film operation and global distribution network, which has cost $1.2 billion, to build a studio that could compete with the U.S. majors.

About $400 million of that investment was spent acquiring film libraries, which has given PolyGram a catalog that includes such classics as “The Graduate” and “When Harry Met Sally.”

The library generates $60 million to $65 million of cash flow a year, which, based on an average industry multiple of 10 times cash flow, values the catalog at $650 million.

The bulk was spent on building a worldwide distribution operation and on production at PolyGram’s collection of movie labels, which include Propaganda Films, Working Title and Interscope.

So far, despite some break-out hits like “Four Weddings and a Funeral,” “Fargo” and “Bean,” PolyGram’s track record at the box office has been troubled.

The film division’s losses doubled in the second quarter as costs rose. The operating loss in the film unit leaped to $49.5 million for the quarter from $21 million. The operating loss for the first six months of the year grew to $82.5 million from $54 million.

In 1991, Kuhn told his company’s board that by the end of the decade, PolyGram’s film operation would start to turn a profit.

Given the growing importance of foreign markets (some project overseas revenues will soon account for 70%-80% of worldwide receipts), one of PolyGram’s biggest selling points is its ability to self-distribute and control the marketing of its product in 14 countries (all major territories except Japan).

When the company, which employs nearly 1,000 people worldwide, launched its own mainstream U.S. distribution operation last year and upped the number of expensive, studio-sized movies, its financial risk rose accordingly.