The subtext to Sunday’s formal statement from Credit Lyonnais about the future of MGM/UA was more intriguing than the surface pronouncements: Given the input of its new counselors at CAA, the French bankers had decided to assume a bold offensive in the high-tech wars of the ’90s. In a dramatic series of stratagems, MGM/UA would be transformed from the invalid of show business into a prime candidate for acquisition by a TCI, an AT&T or one of the other global players intent on building a hardware/software infotainment empire for the next century.
Amid such diversified multinationals as Sony, Matsushita and Time Warner, industry observers note, only Paramount and MGM/UA remain as potential takeover candidates — sources of software for the electronic superhighways of the future. Yet with MGM/UA mired in billions of dollars in debt, its balance sheet has been scrutinized and rejected by every global entity.
The bank’s play, with extensive coaching from Michael Ovitz, is to rebuild both MGM and United Artists as separate entities with strong product slates over the next two years. A new management headed by Frank Mancuso will be instituted — Mancuso became a key player not only because of his distribution expertise but also his acceptance with UIP and other overseas marketing entities. Through a series of complex moves and transfers, the MGM/UA balance sheet will be sanitized so that its debt-to-equity ratio will be 1-to-2.
“It could take until 1997 to fully rebuild the asset value of MGM/UA,” one insider said. The calculated gamble, however, is that at the end of that time, Credit Lyonnais might actually be able to realize a substantial profit on its long and painful adventure into Hollywood, rather than be stuck with massive debt.
As a byproduct, MGM/UA, the phoenix of entertainment companies, might very well emerge from the ashes to regain its past glory. And along the way, Hollywood would gain a major infusion of jobs and money.
The rebuilding process apparently has gone through several pivotal stages over the past few weeks. At one point Ovitz and the French bankers were meeting with some major potential investors who would presumably have joined Credit Lyonnais in refinancing the new MGM/UA. It is understood meetings also were held with Terry Semel, president of Warner Bros., about his taking the top role in the newly resuscitated MGM/UA, but the Semel talks fell through due to his contractual obligations at Warner, among other factors.
Deposed MGM/UA chairman Alan Ladd’s role has been ambiguous. Initially, it seemed as though he would be left to head MGM while Mancuso piloted a revived UA , but Ladd balked at the insistence by the French bankers that Mancuso head marketing and distribution for both entities. The bankers as well as Ovitz were concerned that, without Mancuso’s predominance over marketing, top filmmakers would be reluctant to become involved with MGM/UA.
CERTAIN TOP FILMMAKERS represented by CAA have been openly nervous about working with MGM/UA unless a new marketing presence was introduced, given the company’s extraordinary lack of success in selling its recent films.
With the final exit of Ladd and his team, Mancuso is faced with an extraordinary challenge: For the first time in memory, a major executive, assisted by CAA, will be able to design two executive structures from the ground up. With Mancuso starting his interviews today, the line is expected to circle the block.
ONE SIDELIGHT to the announcement remains the bizarre disinformation campaign involving Cargill, the giant grain conglomerate. As late as Friday, many top editors were still receiving “tips” from presumably qualified sources insisting that Cargill was effectively taking over MGM/UA. Music manager Jeff Wald, it was said, had gone over the head of Credit Lyonnais and their CAA advisers and made their deal directly with the French finance ministry.
Although he vigorously denies participation in this campaign, Michael Sitrick , the financial PR man, was identified by some reporters as one of several sources of the rumors. Sitrick insists he was just trying to help reporters — that he knew the rumors were rife and wanted to be sure his friends in the press knew about them. Indeed, late last week, the Los Angeles Business Journal, which has close ties to Sitrick, cited a tipster as confirming that “an agreement in principal had been reached (with Cargill) and the deal could be ratified this week in Paris.”
The Cargill rumor represented a phenomenon to the Hollywood press, given that no one had even heard of the $ 49 billion-a-year conglomerate until a week ago. Yet at midweek some papers and magazines were actually prepared to run stories confirming the Cargill coup.
As the MGM/UA board met with Credit Lyonnais’ top seven officers and its CAA advisers at the Peninsula Hotel Sunday, the name Cargill was not even mentioned.