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$20 mil dent in Livent

Ovitz housecleaning takes toll; 'Showboat' to shutter

NEW YORK — Legit theater concern Livent Inc. lost a whopping $20 million in the first quarter, it said Friday, just days before former Creative Artists Agency chairman Michael Ovitz formally takes control of the company from impresario Garth Drabinsky.

The latest loss flows from what appears to be the second stage of a housecleaning undertaken by Ovitz, who agreed six weeks ago to invest $20 million to buy a 12% stake in the company. With the support of Livent’s founders, Garth Drabinsky and Myron Gottlieb, and major financial investor Tom Lee, Ovitz will control Livent and will install a management team led by investment banker Roy Furman.

The red ink highlights the enormity of the problems facing Ovitz and Furman, who take control after Livent shareholders vote on the deal June 5. Livent has now lost $50.8 million in the past 15 months — twice the accumulated profits it claimed to have made since it went public in 1993.

Friday’s statement raised more questions than it answered. Livent said the $20 million loss, which compared with a $2 million profit a year earlier, was largely due to a $16.2 million writedown on investments in productions still carried on the balance sheet.

Marginal problem

In a statement, Livent said that after reviewing “updated projected net revenues and the longevity of certain productions, the company, together with the new designated management … decided to focus its business plans on productions with potentially higher margins.”

As a result, it said one of the two North American productions of “Showboat” — now playing in San Francisco and Washington D.C. — will close this year. That prompted the write-off of investments in the shows.

While it is common for new management teams to clean up the balance sheet with such write-downs, Livent took a $27 million write-down against fourth quarter earnings when it announced Ovitz’s investment in mid-April. And Livent execs told Wall Street analysts at the time that the writedown was largely due to “Showboat” as well.

“To our surprise, the company had not entirely swept its balance sheet clean of nonperforming shows,” said Cowen & Co. analyst Paul Marsh.

No explanation was forthcoming on why Livent had to take the second writedown. Livent’s incoming chairman/CEO Furman and its incoming president, David Maisel, were not available for comment. Livent’s existing president, Myron Gottlieb, did not return calls seeking comment while Drabinsky — now chairman/CEO –was traveling and unavailable.

Getting worse

The quarterly result also suggested Livent’s operating performance worsened in the quarter, the period covering the Broadway opening of “Ragtime.” Revenue rose 11% to $55 million, but direct operating expenses jumped 19% to $45 million.

Direct operating expenses don’t include corporate overhead, which also increased. The quarterly result also showed that Livent ratcheted up its spending on new productions sharply in the first quarter, from $9.3 million to $16.6 million.

The extra investment is likely going into “Ragtime” productions, reflecting just how much Livent’s immediate future hangs on the show. Livent said Friday that 80% of the $42.7 million of preproduction investments on the balance sheet March 31 was related to “Ragtime,” up from two-thirds of the $46.2 million in preproduction investments left on the balance sheet Dec. 31.

The uncertainty about the results and the lack of information from the company is clearly giving investors pause. Cowen’s Marsh said in a note to clients Friday that “we are holding back on delivering any further financial estimates until Livent’s new management team begins communicating with the Street.”

Livent stock closed down 37¢ to $8.25 Friday.

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