NEW YORK – Stewart Blair’s departure as CEO of United Artists Theatre Circuit this month (Daily Variety, Dec. 9) has raised new questions about the willingness of UA’s main shareholder, money manager Stonington Partners, to stick with the financially struggling exhibitor.
Stonington, a firm run by former execs of Wall Street giant Merrill Lynch who put together the 1992 leveraged buyout of UA along with Blair, has had its $108 million equity investment in UA nearly wiped out by the exhibitor’s $179 million of accumulated losses since the acquisition.
And the financial pressure on UA is about to be turned up a couple of notches. On Jan. 1, UA’s $400 million bank loans start to come due for repayment and dividends on $164 million in preferred stock owned by UA’s former owner Tele-Communications Inc. become payable in cash at a much higher interest rate than in the past five years.
UA doesn’t have to pay the cash dividends if that would breach its bank facilities but, as one investment banker said, the preferred stock dividend conversion is “just one more pressure point” on UA. The preferred stock carries a hefty voting right that TCI chairman John Malone may exploit, although a TCI spokeswoman declined comment on the situation other than to say the cabler has not written down its investment in UA.
Wall Street sources with knowledge of the situation say the increasing financial pressure is likely to have prompted the management change at UA. Stonington is thought to be anxious to better focus UA’s theater-building plan, which the exhibitor hopes will turn around its performance.
In the third quarter of this year, UA’s net loss jumped from $700,000 to $7.9 million and its cash flow (earnings before interest, taxes, depreciation and amortization) fell 16% to $26.9 million.
This may have also been the right time for Blair, whose five-year employment contract expires in February 1997 and who could probably see he had little chance of making money on his personal investment in UA. Including stock options, he had by far the biggest equity stake among the UA management, holding 357,082 shares in UA’s parent company Oscar, Securities & Exchange Commission filings said.
Those shares would be worthless right now, although Blair may have been able to get Stonington to buy his stock back at his original price plus interest under a stockholders agreement outlined in SEC filings. Such a repurchase was at Stonington’s discretion, filings say. Stonington execs did not return calls for comment and Blair could not be reached. UA execs declined to comment.
What Blair’s departure means for Stonington’s intentions is not clear. One person close to the company said Stonington “wanted a change” and if UA’s performance improves, “they could recover a little bit” of their original investment.
Other sources acknowledge that there was a difference of opinion between Blair and the UA board over the direction of the company and the range of its investments.
UA is expected to sharpen the focus of its building plan now, both domestically and overseas, but execs declined comment.
On Wall Street, the question is whether Stonington will stick with the company, try and sell it or file for a Chapter 11 bankruptcy filing as a way to squeeze the banks.
Wall Streeters say that in the right sale, UA could fetch as much as $600 million, which would return up to $50 million to its common shareholders after repayment of its debt and preferred stock. But there are taxes and costs associated with such a deal that would reduce the return, bankers say.