Seagram May Settle for Sale of Film Library
Failing to get its desired price for PolyGram Filmed Entertainment, Seagram Co. has switched strategies and is planning to sell off the movie company’s 1,500-title library before disposing of or absorbing the other assets later.
A library deal with MGM owner Kirk Kerkorian, who last month made an all-cash bid for the catalog--which includes “Four Weddings and a Funeral,” “Fargo” and “When Harry Met Sally"--could be reached as early as next week, sources said.
Those sources said Kerkorian has substantially sweetened his original offer of $300 million to $350 million to nearly $400 million, but they cautioned that some points remain to be worked out.
Last month, when Kerkorian bid for PolyGram’s library rather than the company as a whole, the Las Vegas billionaire appeared to be the dark horse.
But the situation changed dramatically when Seagram wound up with only one offer for PolyGram in its entirety and two library bids, the other coming from Britain’s Carlton Communications.
Kerkorian is apparently hungry for the library so he can fatten up MGM--which already has the world’s largest post-World War II catalog, with about 4,000 titles--for an eventual sale, possibly to a major media company. MGM’s own library is heavily encumbered by complicated long-term video and cable deals.
All three offers PolyGram received last month were significantly lower than the $1 billion or more Seagram had expected to defray the cost of its pending $10.4-billion acquisition of the PolyGram empire.
Seagram had hoped to sell the assets intact. Besides the library, they also include a movie production operation comprising various labels and deals with producers, as well as a U.S. and international distribution operation.
The only play for the entire company was a joint bid from French TV giant Canal Plus and Artisan Entertainment. The offer, however, reportedly $400 million to $450 million plus the assumption of debt, was regarded as inadequate because, one source said, it is “very conditional with a lot of financing outs.”
Canal Plus, however, could wind up buying the foreign distribution operation based on its stated desire to get into direct theatrical distribution.
Seagram and its advisors have been urging bidders to raise their offers and further clarify their financial commitments, but sources said only Kerkorian increased his bid.
The difficulty unloading PolyGram has to be particularly distressing for Seagram chief Edgar Bronfman Jr., who already has his share of headaches between his Canadian liquor business suffering as a result of the economic crisis in Asia, his Universal Pictures movie studio experiencing a protracted dry spell at the box office and his planned acquisition of the world’s largest music company encountering unanticipated bumps.
Seagram shares rose $1.63 to close at $27.94 on the New York Stock Exchange on Thursday, but they remain sharply below the $46 reached in May when the company announced the PolyGram deal.
The PolyGram movie library can generate a steady cash flow, so it is easier to value than the company’s other assets. One source involved in the sale acknowledged that PolyGram is “an odd asset because it doesn’t make money, it’s got a lot of promising businesses but they’re at an indeterminable stage, so it’s viewed as half-empty or half-full, but not whole.”
The conditional offers were believed to be a reflection of the bidders’ discomfort in not having adequate time for due diligence or access to enough PolyGram financial information.
The auction has been unusually public. At one point, PolyGram President Michael Kuhn went on the defensive in the Hollywood trade papers, responding to unattributed quotes from bidders claiming PolyGram’s overhead and cash needs were too high.
“If those people who made those remarks really believe that, they shouldn’t bid,” he told Daily Variety. “I don’t want them as owners.”
Kuhn, of course, has little say in the matter and could very well find himself out of a job should Seagram decide to dismantle the production company and domestic distribution operation after folding pieces into Universal Pictures.
Bronfman said from the outset that PolyGram’s film operations are duplicative of Universal’s.
Sources said Seagram has not yet decided what to do with the 15 production deals PolyGram has under contract. Presumably, some will be allowed to expire while others will have to be settled out. Shuttering the production operation and deals could prove costly for Seagram.
Kuhn has long contended that although PolyGram has lost money since its inception, the movie company will be profitable within the next 18 months.
But judging from the size of the bids, potential buyers were skeptical. That doubt may be reinforced by the company’s latest offering in the marketplace.
The company predicted internally that “What Dreams May Come,” starring Robin Williams, will gross $100 million in the U.S. While the movie had a decent opening last weekend, industry experts doubt the $85-million production’s staying power and believe PolyGram could suffer a significant loss on its investment.