NEW YORK — The race for Polygram Holdings widened Wednesday as two new bidders, including a group led by former Creative Artists Agency chairman Michael Ovitz, joined Seagram Co. Ltd. as possible suitors for the company.
Ovitz has teamed with two leveraged buyout firms, Forstmann Little and Thomas H. Lee & Co., to explore an offer, while another big leveraged buyout firm is believed to have partnered with an investment bank to work on a bid, sources said. Its identity could not be learned late Wednesday.
Polygram’s board gave the go-ahead Wednesday for both new groups to get financial information and organizational data on the music and film giant, sources said, enabling them to analyze the economics of an offer. Polygram declined comment.
Seagram remains well advanced in negotiations, however, and is believed to be confident of wrapping up a deal within a week.
“It’s somewhat fluid,” one source said.
Wall Streeters cautioned that no deal is done until all the details are finalized.
Ovitz at early stage
Details of Ovitz’s plans for Polygram are unclear. People with knowledge of the situation said Ovitz’s group is at a very early stage in its work, but he is believed to be friendly with Polygram’s existing management team, led by CEO Alain Levy. Ovitz is not thought to be interested in playing a day-to-day management role himself.
Polygram represents a big opportunity for an exec like Ovitz, given its developing film business and its huge music group. It would enable him to return to a role on a scale he had while president of the Walt Disney Co. Ovitz was not available for comment, while a spokesman for Lee declined comment. Forstmann did not return calls.
While the new players are only exploring an offer at this point, their entry into the situation will be welcome for both Polygram and its 75% shareholder, Philips Electronics, which now have possible alternatives to selling to Seagram. Polygram stock rose $1.25 to $53 Wednesday.
After receiving an approach from Seagram about buying Polygram, Philips declared last week it was reviewing its “strategic options” for its holding in the company. So far, however, Wall Streeters say other media companies have shown little interest in competing with Seagram for the company, which will likely cost $11 billion.
Who could top Seagram?
Some on Wall Street question how LBO firms could mount a higher offer than Seagram, which can merge Polygram into its Universal Studios Inc. and generate cost savings of at least $150 million, analysts estimate. Such cost savings mean Seagram can afford to pay more.
LBO firms usually try to buy companies that can generate higher than average returns over a period of five years, and some on Wall Street question what can be improved at Polygram to generate such a high return.
LBO buyers would likely need to put at least $5 billion in equity to finance the deal, analysts say, with bank borrowings covering the rest of the cost. While the $5 billion equity figure is big, it is not out of reach of the big LBO firms, which have access to vast sums of capital.
One source noted that the firms could raise extra capital from their investors to fund a deal such as this. The booming stock market has dramatically increased the amount of capital available for LBO firms, which have become frequent buyers of assets in media deals in the past couple of years.
Lee invested in Livent
Forstmann Little is not known as a buyer of media, but the Boston-based Thomas Lee has invested in companies like Broadway concern Livent Inc.
Lee has become close to Ovitz, sources say, and was involved in Ovitz’s decision to buy a controlling stake in Livent last month. Forstmann principal Teddy Forstmann has been close to Ovitz for some time, and there were rumors on Wall Street when Ovitz quit Disney in late 1996 that he would join Forstmann Little.
Ovitz’s presence in the bidding will not be welcomed by Seagram. Ovitz was a consultant to Seagram CEO Edgar Bronfman Jr. when he negotiated to buy Universal in 1995, angering then-MCA chairman Lew Wasserman and CEO Sidney Sheinberg, who were not consulted about the talks.
But Ovitz’s bid will be encouraged by Polygram, in particular, which has a different agenda to that of Philips. Polygram’s board has a duty to make sure any sale is fair to all shareholders, Wall Streeters note, whereas Philips’ main objective is to get the best price for its stake.
Philips is believed to have promised Polygram to try to work cooperatively, suggesting the Dutch electronics conglomerate will try to do a deal that benefits the public shareholders owning the outstanding 25%. To safeguard its interests, Polygram has retained Lazard Freres LLC while Philips is being advised by Goldman Sachs.