Carolco is not only sleeping with the lion, it’s rolling in dough.
In a lengthy conference call late Monday night among Hollywood, Paris, Tokyo and New York, Carolco’s board approved MGM’s proposal to buy a stake in the financially troubled indie, and agreed to accept a $ 110 million infusion in new cash from Carolco’s strategic partners.
The sweeping decision opens the way for Carolco’s long-awaited restructuring, including retiring high-priced debt, issuing new stock to the key investors and gaining a much-needed credit line.
The action also reportedly rebuffs a last-minute bid by Savoy Pictures to merge with or buy a piece of Carolco. Savoy, said a source close to the negotiations, had made a counterbid to MGM with the advice of New York entertainment investment bankers Allen & Co.
Instead, Mario Kassar’s Carolco team OK’d MGM’s proposal to purchase an equity stake, in the 15% range, for $ 30 million in cash, plus receive a note for another $ 30 million that automatically converts to common stock when certain performance targets are met. MGM reportedly was advised by Beverly Hills investment bankers Bannon & Co. Both MGM and Bannon refused comment.
In addition, Carolco’s three strategic partners–France’s Canal Plus, Japan’s Pioneer and Italy’s Rizzoli–ponied up $ 60 million more in exchange for a new issue of preferred stock. The three will now hold between 50% and 60% of the company.
$ 50 mil co-prod’n coin
Also, the trio is kicking in another $ 50 million in co-production financing funds.
Daniels & Associates and Jefferson Capital Group Ltd. are advising Carolco. They also were unavailable for comment.
Bear Stearns & Co. reportedly is supplying a fairness opinion to the company’s shareholders. A filing with the Securities & Exchange Commission, detailing all the transactions, is expected tomorrow. “Carolco, overnight, will become an unleveraged company,” said one source.
The deal reportedly was not engineered by the French bank Credit Lyonnais, which owns MGM and is Carolco’s lender. “In fact,” said one observer, “MGM had to convince the bank.”
Clearly, both Carolco and MGM will be healthier, which is good for Credit Lyonnais. “What it means for MGM is that it puts them back in the same distribution range as the other majors,” said a source.
The move combines MGM’s annual output of 10 films plus a couple of pickups a year, with Carolco, which at its peak was generating four to six.
Take over from TriStar
MGM now will pick up a five-year deal for distribution rights from TriStar Pictures when that deal expires in January 1994.
In the meantime, the new money will go a long way toward solving some pressing problems for the cash-starved Carolco. It faces paying $ 3.4 million in missed interest payments on two issues of debt by the end of the month, but more likely will simply buy them back for a percent of their face value, which stands around $ 49.9 million.
The entire package will also loosen the leash that Credit Lyonnais has kept on Kassar, who is known for big-budget extravaganzas. After such a large commitment from the original investors, the bank is expected to step forward and increase a credit line which stood at $ 50 million.