Bidder reality

With offers lacking, Seagram may keep Polygram

Seagram Co. may end up getting as few as two bids for Polygram Filmed Entertainment by the time the deadline passes today, increasing the possibility that Seagram will end up keeping PFE within Universal Studios.

Only U.S. mini-major Artisan Entertainment and French pay TV giant Canal Plus seemed certain to make offers as of late Thursday.

Metro-Goldwyn-Mayer will make a decision today about an offer, while plans of U.K. media group Carlton Communications were unclear Thursday night.

Meanwhile, U.K. music giant EMI confirmed Thursday it “is no longer considering” an offer for PFE, depriving Seagram of its most promising buyer.

At the same time, Lakeshore Entertainment is not expected to lodge a formal offer before the bidding deadline, although it is still working on the deal and may give Seagram’s adviser, Goldman Sachs, an informal indication of the price it is willing to pay.

A similar stance may be taken by several of the bidders, including MGM and Carlton, sources said. That would put pressure on Seagram to extend the bidding deadline.

People close to the situation said the companies that do lodge bids are unlikely to offer more than $500 million, the lower end of the price range Seagram was seeking. Seagram is selling PFE as a result of its agreement to acquire PFE’s parent, Polygram Holdings, last May.

EMI’s withdrawal is a major blow to Seagram and PFE, as it had the deep pockets and the strategic rationale to pay a big price to get into the film industry.

An EMI source said Thursday that “buying PFE made sense in lots of ways. It’s a good company, and (PFE prexy) Michael Kuhn has done a good job building it. But at the end of the day, it just didn’t meet our criteria for investing that kind of money.”

The sharp drop in EMI’s stock price after its interest in PFE leaked last month is understood to have persuaded executive chairman Colin Southgate and his fellow board members not to risk going ahead with a bid.

An offer of $500 million would be an effective price of $800 million, including Polygram’s $300 million of off-balance sheet film debt. But that is still $400 million below the total amount invested by Philips in PFE.

Whether such a price will be acceptable to Seagram is unclear. Kuhn acknowledged that if the bidding is not high enough, Seagram could simply keep the company (Daily Variety, Sept. 14). Seagram declined comment.

Some observers believe Universal may want to keep PFE, to add the film library to its catalog and to get the best of the production deals. But Universal Studios chairman Frank Biondi played down such talk Thursday, saying it was “premature” to speculate. He denied that EMI’s withdrawal hurt the chances of a reasonable price emerging from the remaining “four or five” bidders.

If U were to absorb PFE, it probably would both close the mini-major’s production facilities and let go its senior management. Such a process would be expensive, given the cost of terminating contracts.

Seagram CEO Edgar Bronfman Jr. made clear in May he thought PFE was “duplicative” of U’s presence in film, and he likely will sell if he can get anything close to a reasonable price, some observers said.

Still, Seagram’s adviser Goldman Sachs appears to have badly misjudged the situation. Several bidders have complained in recent weeks of the way Goldman appeared to be favoring EMI in the auction process, giving the other bidders much less time to prepare their bids.

“The bargaining dynamic is weakening from Goldman Sachs’ standpoint,” said one bidder.

PFE execs have their own point of view and are believed to be hoping for an acceptable bid from either Canal Plus or Carlton.

Of the two, a bid from Canal Plus seems more likely, as several sources said Carlton’s interest did not appear strong. One Carlton insider said PFE’s 1,500-title film library lacks the kind of locomotive pics that could significantly enhance the selling power of its existing catalogs.

A Carlton spokesman refused to comment, but insiders report a last-minute scramble to crunch numbers as the company mulls its options.

Canal Plus is understood to have thrown far greater resources than Carlton into combing the PFE books. Canal Plus execs were not available for comment Thursday, but Canal Plus chairman Pierre Lescure has been the most outspoken advocate of a deal among Euro showbiz figures since PFE was put on the market in May.

Artisan, meanwhile, may end up being the dark horse that wins the race. Earlier this month, Artisan acquired the home entertainment rights to the Spelling Entertainment Group library. Carlton’s catalog now stands at a total of 6,300 films. The PFE library would increase that figure by 1,500 titles.

While Artisan has grown rapidly to mini-major status since a consortium headed by Bain Capital bought the company (then called Live Entertainment) in 1997, sources said it would keep some parts of PFE and dispatch others, in keeping with its low-cost business plan for the studio.

While Artisan and Canal Plus are expected to make separate bids today, there is increasing speculation that they may team up in a joint bid. Canal Plus has had discussions with several possible partners but is still talking with Artisan, sources said.

The wild card is MGM, which declined comment Thursday. MGM’s majority shareholder, Kirk Kerkorian, is notoriously unpredictable and could make a big bid today or could pull out entirely. Alternately, MGM could continue examining the company but not make an offer.

(Adam Dawtrey in London contributed to this report.)

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