Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: TUESDAY, April 11, 1995 TAG: 9504110139
SECTION: BUSINESS PAGE: B-6 EDITION: METRO
SOURCE: Los Angeles Times
DATELINE: HOLLYWOOD LENGTH: Long
In Hollywood, deals often are made and broken based solely on trust.
The $5.7 billion sale late Sunday of an 80 percent stake in MCA Inc. by Matsushita Electric Industrial Co. stemmed from an intense distrust that had brewed for more than two years between the Japanese owners and American managers.
Seagram Co.'s ability to move fast, tie up Matsushita in exclusive negotiations and gain control of MCA reflects the extraordinary trust that developed in just a few weeks between Seagram Chief Executive Edgar Bronfman Jr., 39, and Matsushita President Yoichi Morishita, 61.
According to half a dozen key sources, these relationships of trust and distrust were the crucial backdrop to six months of maneuvering and negotiations spanning 10 time zones that led to the selling of one of Hollywood's major entertainment companies.
The stage for the sale of MCA was set last fall.
Senior officials from Matsushita planned a secret meeting with MCA's top executives - Chairman Lew Wasserman and President Sidney Sheinberg - at the posh Halekulani Hotel on Waikiki Beach in Hawaii to try to soothe worsening relations.
When news leaks divulged the site of the Oct. 18 meeting, the locale quickly was switched to the Mark Hopkins Hotel on San Francisco's Nob Hill in hopes that details of one of the most scrutinized corporate family squabbles could be kept private. News reports suggested that Wasserman and Sheinberg might propose a buyback of the company they had sold the Japanese in 1990.
The issue of ownership was never broached. But the issue of control was central to the meeting, of which Morishita was chairman. Wasserman and Sheinberg expressed a strong desire to expand MCA globally through acquisitions and reinvestments to stay competitive with such rivals as Time Warner and Rupert Murdoch's News Corps.
The San Francisco meeting was the culmination of tensions that had been brewing since Matsushita bought MCA with the idea of seamlessly blending its ``hardware'' electronics business with one of Hollywood's premier ``software'' companies that makes and distributes movies, TV shows and music.
Wasserman and Sheinberg issued an ultimatum, telling Morishita that if they couldn't build the company as they saw fit, they would leave when their contracts expire at the end of 1995. The meeting ended acrimoniously, with both MCA and Matsushita officials leaving frustrated.
For MCA, the meeting crystallized what it had come to realize for several years - that Matsushita would not be the deep pockets the company hoped for to expand and keep up with such media giants as Time Warner, owner of Warner Bros. Studios; Rupert Murdoch's News Corp., owner of 20th Century Fox; and Viacom Inc., which earlier in the year had bought Paramount Communications.
On Sept. 17, Wasserman and Sheinberg flew to Matsushita's hometown of Osaka to discuss a possible bid for CBS with ITT Corp. Because MCA was foreign-owned, the company would be only a 25 percent partner. Still, it would give MCA access to an important distribution outlet for its shows at a time when competition for such channels is intense.
The meeting started off badly, with Morishita keeping the executives waiting for two hours, said a source close to the negotiations. Matsushita rejected the proposal.
MCA also was overruled by Matsushita in the way it wanted to structure a deal for the $1.5 billion Universal Studios Japan, which is being built in Osaka and is expected to be completed in 1999.
``There was a history of growing frustration,'' an MCA insider said. ``When the answer kept coming back `no' to all the suggestions like `let us access the public markets, let us orchestrate a sale, let's bring in a partner ' ... it was clear things were really over.''
Another factor affecting MCA's future was the sea change in the Japanese economy, which after booming in the 1980s fell on hard times.
After the San Francisco meeting, Matsushita called upon Creative Artists Agency's Michael Ovitz and Wall Street entertainment investment banker Herbert Allen, of Allen & Co. - both of whom helped broker the 1990 MCA sale to Matsushita - for advice. Ovitz and a team of CAA executives flew to Osaka in November to talk with Matsushita executives, who pointedly asked if the problems could be resolved at all.
By December, it became clear to Matsushita advisers that MCA might be sold. Allen & Co. and the Wall Street investment bank Goldman Sachs were asked to appraise the entertainment giant.
In January, Ovitz and six CAA executives flew to Osaka for an eight-hour meeting with Matsushita's entire senior management, including Morishita. The CAA team made a four-hour, bilingual presentation to Matsushita officials explaining their options and potential strategic alliances. One option: Sell the company.
Later in January, a lower-level Matsushita executive talked casually by telephone with Seagram Chief Financial Officer Stephen Banner, who as a mergers lawyer on Wall Street had worked on the original Matsushita acquisition of MCA. Banner indicated that Bronfman might be interested in buying MCA, broaching for the first time Seagram's interest in the company. For the next month, executives of the Canadian distiller debated the possible acquisition internally.
On March 6, Bronfman met in Osaka with Morishita in a get-acquainted session to see what each side wanted. At that meeting, the two sides decided to negotiate exclusively for a possible sale.
For Seagram, sources said, an exclusive negotiation would prevent MCA from turning into an auction. For Matsushita, it would spare the company public embarrassment if the deal fell through. About two weeks ago, Bronfman made a second critical trip to Osaka, where he made a firm proposal. The two sides left with no deal, but a clear understanding of where each stood in relation to the value of MCA and how a sale might be structured.
They agreed to continue negotiating exclusively, turning over the talks to hired experts - the lawyers and bankers.
``While there was no assurance that the gaps could be bridged, there was extraordinary trust and respect,'' said one Wall Street executive familiar with the deal.
``The trust between Bronfman and a man running a $65 billion-a-year company who doesn't speak English was quite remarkable. This was a transaction built by two people who trusted each other.''
On April 1, the lawyers began drafting documents. The deal was hammered out over 10 days in round-the-clock meetings.
At 3:30 p.m. Sunday, Bronfman formally signed to buy 80 percent of MCA.
The deal for MCA may have repercussions for ownership at Time Warner. Seagram finds itself in the potentially awkward position of picking scripts, recruiting musical acts and setting admission rates for MCA while having a stake in how a big entertainment rival handles the same issues.
Many analysts expect Seagram to sell or swap its Time Warner investment, worth about $2 billion, to finance improvements at MCA or expand its entertainment and media holdings even further.
Bronfman said he has made no decision on what to do with the Time Warner stake.
The Associated Press contributed information to this story.
by CNB