Stockholders will see big loss in liquidation

NEW YORK — Stockholders in Cinergi Pictures Entertainment Inc. could walk away with between $2 and $2.50 a share once the liquidation of the indie is complete in the next six months, investment bankers said Thursday. That would represent at least a 75% loss on the price paid by investors for the company’s two public offerings in 1994 and 1995.

But the value is well above where Cinergi stock is currently trading, giving speculators on Wall Street a big opportunity in coming weeks. Cinergi stock, which had risen as high as $1.53 last month, closed down 3¢ to $1.31 Thursday.

Walt Disney Co. and Cinergi confirmed late Thursday their decision to liquidate the company (Daily Variety, April 3) after a yearlong strategic review of its future, prompted by rising costs of production and marketing and the poor performance of most of the company’s releases over the past three years.

As expected, Disney will buy Cinergi’s library — except “Die Hard With a Vengeance” — in exchange for canceling $38 million of production advances owed to the Mouse House and cancellation of Disney’s 5% stake in Cinergi, which had originally cost the Mouse House $5 million.

The sale gives Disney rights to 11 movies, including “Medicine Man,” “Tombstone,” “Renaissance Man,” “Color of Night,” “Judge Dredd,” “The Scarlet Letter,” “Nixon,” “Evita” and “An Alan Smithee Film,” which is still in production.

Additionally, Cinergi said that it doesn’t plan to begin production on any future films and is considering “disposing of those assets which are not being sold to Disney in one or a series of transactions.” Cash raised from the asset sales will be used to buy out Cinergi’s shareholders.

The assets still to be sold are Cinergi’s development projects, a special effects facility and an interest in “Die Hard With a Vengeance,” which is jointly owned with 20th Century Fox. Cinergi said it was “presently in discussions regarding the potential sale of the substantial portion of the assets.” Cinergi chairman Andy Vajna is expected to buy the development slate, carried in Cinergi’s balance sheet at $8.3 million, while Fox is likely to buy the “Die Hard” interest. The special effects facility is carried in Cinergi’s balance sheet at $3.5 million.

The interest in “Die Hard,” Cinergi’s best-performing film, is the indie’s most valuable asset, worth about $20 million, Wall Street sources say, based on the estimated future cash flows still due the indie. As that money will come in over several years, Fox may only offer a discount on that total, bankers say.

In addition, Cinergi likely has close to $10 million in cash still on its balance sheet. That means once the assets are all sold the company could have as much as $37 million in cash, or $2.61 a share, although expenses of the liquidation will reduce that slightly.

Precise details of how the buyout will occur are still not clear. What is apparent, however, is that the liquidation will realize a huge loss for most investors in the company, including Vajna, who still owns 43.7% of the stock.

Vajna is likely to walk away from the deal with a personal loss of about $20 million, although a precise figure is unavailable. He started the company in 1989, after leaving Carolco Pictures, although it went public in 1994. At that time Vajna converted $33.6 million in loans to the private company to equity in the public company, SEC filings show.

But he still owns 6.2 million shares, which are likely to be worth about $15 million, reducing his total loss. He may not get cash for all his stock, however: Bankers speculate Vajna will swap part of his stake for the development slate. A big question will be how much the development slate is sold for; the value of projects is very much in the eye of the beholder, industry execs observed Thursday.

The biggest losers are the public shareholders, who twice ponied up between $8.50 and $9 a share in public offerings which raised a total of $55 million to finance Cinergi’s production.

Despite the big losses, bankers say Cinergi shareholders are likely getting the best deal possible in the circumstances. Over the past year Cinergi and its adviser, Jefferson Capital, had approached a wide range of potential buyers to try and sell the company. And while everyone from Arnon Milchan’s New Regency Enterprises to Mike Medavoy’s Phoenix Pictures looked, no one was willing to offer a deal that could beat what could be raised in a liquidation, several sources said.

The company was held back because the stock price traded so much below the liquidation value, some bankers say.

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