Is Milken Mulling Moguldom?

It’s almost like old times.

Two years after his release from prison, former junk bond king Michael Milken is reuniting his old network of business associates and again turning heads in Hollywood.

Despite being banned for life from working in the securities industry, and hoping to beat prostate cancer, Milken, as an investor, is working behind the scenes and in tandem with many of his former colleagues from Drexel Burnham Lambert to orchestrate some showbiz deals.

Milken is understood to have brought News Corp. chairman Rupert Murdoch together with New World Communications chairman Ron Perelman before the two negotiated the affiliation and investment deal that rocked the TV industry last year. Milken was a key financier for both moguls in the 1980s and Murdoch is known to have stayed close to Milken.

There are even suggestions that Milken introduced multibillionaire investor George Soros to New World, although this could not be confirmed. Soros spent $18 million to buy a 5.4% stake in New World in January – a tiny investment for a man who manages more than $10 billion in funds but important for New World, which has been trying to attract investors and get its stock price up. Soros also has bought a tiny stake in Perelman’s Marvel Entertainment.

Beyond the New World deal, both Soros and Milken are dabbling in other parts of the entertainment industry as well.

Milken, who’s been quite press-shy since regaining his freedom, is reported to have made two small investments in radio and interactive media. Wall Streeters say he has looked at other entertainment deals as well, including film production and newspapers. They aren’t suggesting, though, that his moves violate the ban on involvement in the securities industry.

Soros’ showbiz

Soros has set up a partnership with oilman and former 20th Century Fox owner Marvin Davis to invest in energy ventures. Davis’ fascination with entertainment appears to have rubbed off on Soros – in recent months the billionaire has bought a small position in Davis’ troubled Spectravision as well as investing in a range of other entertainment companies including Viacom and Spelling Entertainment.

Last year, Soros paid $40 million for an 8% stake in satellite broadcaster USSB, controlled by Hubbard Broadcasting. Soros has made smaller investments in telco startups like Geotek.

These deals are small change for investors like Soros, and people close to him downplay their significance. But they highlight how Soros and other canny investors have spotted the long-term potential emerging from the convergence of entertainment, computing and telecommunications. Paul Kagan Associates analyst Jimmy Schaefler said Soros’ investment in USSB was “a very strong move” for the industry.

For Milken, of course, the interest in entertainment is not new. In the 1980s he helped finance the growth of many of the big cable and entertainment conglomerates, from TCI to Viacom to News Corp.

The workaholic L.A. native always refused to move to Wall Street. Instead, he transformed the high-finance world from his Rodeo Drive office in Beverly Hills.

His former trading room, the source of funding for the likes of Kirk Kerkorian and Ted Turner, is now home to the United Talent Agency; a few blocks west on Wilshire Boulevard is Creative Artists Agency, and a few blocks east lies the International Creative Management headquarters.

Roots

Some of the deals with which Milken is now involved contain remnants from his Drexel days. New World itself was formed from the ashes of SCI Television, which was a product of Drexel high-yield financing. Its restructuring into New World was helped along by Apollo Advisors, the investment firm run by former Drexel exec Leon Black. And another former Drexel staffer, Art Bilger, was hired by Perelman as New World president and chief operating officer in November.

New deals often are brought to him by former colleagues. Only months after his release from prison, Milken was introduced to an interactive startup company, 7th Level, by former colleagues who had set up at investment firm Onyx Partners in Los Angeles. The introduction led Milken to kick in $1 million while another client from Drexel days, Lorimar founder Merv Adelson, put in $400,000.

Dave Henkel, 7th Level chief financial officer, says Onyx “knew Milken was interested in education and entertainment and telecommunications and all of that good stuff.”

“They introduced us to him and we found that we had a lot in common,” Henkel said. The company makes interactive entertainment, now distributed on CD-ROM, but Henkel said distribution will widen to include broadcast television once that is available.

Strictures

When 7th Level went public late last year, Milken’s investment was translated into a shareholding of about 19.2%, although Milken is prevented from voting the stock. To get approval for listing on Nasdaq, sources say, Milken had to agree to turn over voting rights on his stock permanently to Adelson. A spokesman for Nasdaq refused to comment.

Another vehicle Milken is using is Archon Capital Partners, a Los Angeles-based self-described “merchant bank” formed by investment banker Bob Fell and former MGM exec Ken Spivack. Fell says a trust formed for Milken’s children has invested in Archon, which in turn put $14 million into Premiere Radio Networks in a deal expected to close next month.

The investment will give Archon a 40% stake in Premiere, which provides radio programming to stations around the country. Premiere CEO Steve Lehman says Premiere plans to expand through acquisition of other companies and by developing new programming. While his interest in the producer is indirect, Milken has played an important role at Premiere. “Michael is there if I need him to make an entree for me, which he has. If I have a question, I can call him,” Lehman says.

Fell says Archon is keen to invest in radio programming around the world as well as in other parts of the entertainment sector. He is vague on the details but says Archon might put money into a film library, for example. Wall Street sources say Milken, acting on behalf of Archon, has approached people about investing in other entertainment deals.

– J. Max Robins contributed to this report.

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