Livent Sells 20% Stake

Plenty of people willing to pay a premium for their opening night tickets to a Broadway show. Thomas H. Lee is about to spend $22.5 million for his.

The Boston leveraged buyout artist, who’s made a fortune scoping out small and midsize companies with untapped growth potential, has agreed to purchase 13% of Live Entertainment Inc. of Canada from its two top executives, the companies announced Jan. 18. In five years, he can increase that stake to about 20%.

Livent is the theatrical production company spun off of movie theater chain Cineplex Odeon by Garth Drabinsky and Myron Gottlieb, and the only concern of its kind to be publicly traded.

Hefty B.O. share

Livent’s shows, which include the acclaimed revival of “Show Boat” and “Kiss of the Spider Woman,” both on Broadway, currently account for about one fifth of the North American legit box office. The company also owns or operates several Canadian theaters.

The sale was prompted by Drabinsky and Gottlieb’s need for cash to pay capital gains taxes incurred when they bought Livent from Cineplex and converted their partnership into a corporation two years ago.

The deal, set to close Feb. 3, will leave them with 33% of the company jointly, down considerably from the majority ownership they have held since stock was first issued in May 1993. Moreover, Lee and a partner, Scott Sperling, will become directors of the company, increasing the board to 13 members.

A shareholders’ agreement with Lee assures Drabinsky, Livent’s chairman and CEO, and Gottlieb, president and chief operating officer, of continuing management control of the company, Drabinsky said.

News of the deal bumped up Livent’s stock about three-quarters of a point, to $C11.75 ($8.34) a share, by week’s end. The stock has traded as high as $18.

Big charge on ‘Kiss’

In a related move, Drains said he will take a fourth-quarter charge of $C8.9 million ($6.32 million) – the cost of producing “Kiss of the Spider Woman” on Broadway. As a result, the company expects to show a fourth-quarter net loss of $C2 million ($1.42 million). “Kiss” sustained substantial losses last season but has picked up considerably since Vanessa Williams took over the leading role in the fall.

“It’s the only show where we don’t know clearly how long it’s going to run,” Drabinsky told Variety. “To give the balance sheet the most conservative listing, we decided to take the write-down now.”

Drabinsky described the move as part of a plan to position the company for share trading in the U.S., on either the New York Stock Exchange or Nasdaq. For the first three quarters, Livent reported net income of $C7.9 million ($5.61 million), up from $C5.6 million ($3.98 million) for the same period in 1993.

Lee is best known for buying the Snapple Beverage Corp. for $135 million in March 1992 and turning it into an investment worth more than $2 billion, according to a Forbes magazine profile last spring.

The $92 million he paid in 1992 for home-alarm maker First Alert was worth six times that when the company was taken public less than two years later. His investment firm, Thomas H. Lee Co., manages funds totaling more than $1.7 billion.

Both Drabinsky and his broker, Furman Selz founder Roy Furman, stressed the importance of the deal as a signal that theatrical investment can be attractive to outside interests.

“This is a very historic deal because other money is now going to look at the theater business,” Drabinsky said. “It’s saying the theater has a capacity for attracting significant investors.”

In the two-part deal, Lee’s firm will purchase 1.6 million common shares of Livent – 800,000 each from Drabinsky and Gottlieb – for about $C16.8 million ($11.93 million), or about 13% of the 12 million outstanding shares. Drabinsky and Gottlieb will retain about 4 million shares, or 33% of the company; they have voting rights over an additional 3% of the shares.

The other part of the deal, which needs regulatory approvals, has Lee buying $C 15 million ($10.65 million) of 8.95% five-year subordinated notes. They’re convertible to common shares at a 20% premium over the market price, with a cap of $C13.20 ($9.37). If Lee converts, he could end up with nearly 20% of the company.

“We’ve seen the expansion of theater from a very limited industry,” Furman said Jan. 18, “to a monumental business. ‘Show Boat’ and ‘Beauty and the Beast’ are seen as colossally expensive by Broadway standards, but I look at that and see it as the opening weekend expenditure for a movie. And the musical, if it works, becomes an industry unto itself – there’s a ‘Cats’ industry, a ‘Phantom’ industry.

“This deal,” Furman added, “is a validation of the business by an extremely sophisticated investor who expects a high rate of return. It’s a validation of Garth and Myron, of Livent, and of the concept that this is a very open-ended industry.”

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