Buyers balk at Polygram pix price

Possible contenders talking down $1 bil tag

The list of potential buyers for Polygram Filmed Entertainment already appears to be dwindling, just a week after the business was put on the market.

French pay TV group Canal Plus, which led the charge to keep PFE in Euro hands 10 days ago, backed off Thursday from suggestions that it would be interested in buying Polygram Filmed Entertainment.

Speaking in Paris after the Canal Plus annual shareholder meeting, Canal Plus chairman Pierre Lescure said his main interest was in PFE’s film library, adding that even participation in a consortium bid for PFE would depend on a lower price than the $1 billion some had hoped the company would bring.

A similar view is held by American companies that had been seen as potential buyers, such as Metro-Goldwyn-Mayer, which is showing little interest. People close to the Lion made clear that while MGM was always interested in adding to its film library, the price of Polygram’s catalog was a stumbling block. MGM declined comment.

‘Not interested’

At the same time Pathe, another French company thought to be interested, has ruled itself out, sources say. Pathe declined comment, but insiders said Pathe chairman Jerome Seydoux “is not interested.”

It has been just a week since Polygram Filmed Entertainment was put on the market by Seagram Co., which has agreed to buy music giant Polygram Holdings for $10.6 billion, and its possible buyers are simply talking the price down.

PFE CEO Michael Kuhn hopes to organize a management buyout of the film unit if he can find strategic partners, which might include companies like Canal Plus.

Lescure said that while Canal Plus was open to such a deal, “it is not even imaginable to start negotiations at the current price.” No official figure has been set on PFE’s value, although estimates have put a pricetag of around $1 billion on the company.

Lescure told shareholders, “If the price came down to a more reasonable level, we could be interested, but there is no question of doing it on our own without partners.”

Too soon to be specific

Asked to clarify his position, the Canal Plus chief told Daily Variety, “It’s really too early to be specific. It might be that we wanted the library, and another person wanted the U.S. distribution or production.”

Other European companies that might be interested appear to be engaged elsewhere. Both Bertelsmann and Pearson Plc have just bought big U.S. publishers (Bertelsmann acquired Random House while Pearson bought Simon & Schuster) that are expected to keep them out of the bidding, bankers said.

People close to Polygram said it is too early for any potential buyers to form a view because valuing the production side of PFE, in particular, is difficult from the outside. Indeed, Lescure said his team will wait to see what value is put on the various sectors of PFE’s business before making a move.

“We need to know what the U.S. distribution is worth, what the European distribution is worth, what the production side is worth and what the library is worth, before we act,” Lescure told Daily Variety.

Bankers in the U.S. said a more reasonable price for PFE would be $500 million to $700 million, particularly as most of the interest is in the film catalog.

Looking at library

Aside from MGM, News Corp.’s 20th Century Fox and Walt Disney Co. were expected to take a look. All three bid against Polygram for the 1,051-title CDR Library, acquired by Polygram last December for $225 million.

This library accounts for two-thirds of Polygram’s film library. But Polygram’s winning bid was at least $100 million more than the lowest bid, which means Polygram may value its library substantially more highly than other U.S. buyers.

“What is going to attract people here is the library, and it will be difficult for Polygram to get what they paid for it,” said one banker.

Lescure’s retreat on PFE appears to be partly in response to negative reaction from French stock market analysts to his comments last week that he hoped a “European solution” could be found for Polygram Filmed Entertainment.

French analysts fear that a run at PFE would add to Canal Plus’ financial woes. Canal Plus is expected to show a 1998 loss of around $100 million.

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