Polygram worth the price, Kuhn asserts

PFE prexy sez studio will see profits within 18 months

TORONTO — Polygram Filmed Entertainment prexy Michael Kuhn went on the offensive Sunday to champion his embattled company.

Speaking on the record for the first time since the company was put up for sale by Seagram Co. in June, the PFE prexy hit back at bidders who claimed that its overhead and cash needs were too high.

“If those people who made those remarks really believe that, they shouldn’t bid,” he said. “I don’t want them as owners.”

According to bidding sources, Kuhn’s business plan will require an injection of $376 million in 1999 to cover PFE’s cash flow loss, and a further $118 million in 2000.

At the same time, those sources said, PFE expects cash flow from new releases to triple between 1999 and 2002 to $310 million.

Final offers for PFE are due Sept. 18. In the running are music giant EMI, MGM, Canal Plus, Carlton, Lakeshore Entertainment and Artisan Entertainment.

The identity of the buyer will determine whether PFE’s production activities are shuttered and its library merged into another company’s, or whether PFE continues with Kuhn’s plan to release as many as 16 pics a year.

PFE is being sold as a result of Seagram Co.’s agreement to buy music giant Polygram Holdings, which has invested a total of $1.2 billion to develop PFE.

The biggest question is whether, if the offers are too low, Seagram decides it can make more money by holding onto PFE, and folding it into its own film unit, Universal Studios.

Kuhn argued that, by trying to push the price down, bidders were making this eventuality more likely.

“Seagram will not sell this asset below a certain price because it makes more sense to keep it,” he said. “If (buyers) try to talk the price down the way you do in a normal auction, they won’t get the assets.”

The most important aspect for bidders to examine, per Kuhn, was the relationship between the size of the overhead and the revenues of the company.

PFE’s overhead is running at an annual rate of about $170 million. But PFE has told bidders in briefing books that it expects to cut that figure by about $22 million. PFE’s overall revenues are expected to hit $1.4 billion next year.

Kuhn emphasized that PFE was on the right track with its business plan and that its heavy investments had been necessary in order to set up an international distribution business. PFE now has direct distribution in 14 countries, covering 85% of the world in terms of overall revenues.

Overall, Kuhn admitted that the timing of the sale was particularly bad, given that PFE has yet to begin making money. He asserted that the studio would be profitable within 18 months and making “decent profits” with four years.

“I feel like we’re selling a pig before it’s been fattened for market,” he said. “You couldn’t really pick a worse time to try and sell it. Having said that, the fact that we have four or five blue-chip bidders, even at this stage, is a better batting average than you’d expect.”

PFE’s pic performance at present is mixed. “Return to Paradise,” starring Vince Vaughn and Anne Heche, has stalled in the U.S. with $7.6 million. But the ultra low-budget gangster pic “Lock, Stock and Two Smoking Barrels” has grossed $6 million in the U.K. after just two weeks.

The studio’s $85 million Robin Williams starrer “What Dreams May Come,” opens in the U.S. on Oct. 2.

In the pipeline, PFE has the Hugh Grant/Julia Roberts-starrer “Notting Hill,” the critically acclaimed period drama “Elizabeth” and the thriller “Arlington Road,” starring Tim Robbins and Julia Roberts.

(Martin Peers in New York contributed to this report.)

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