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Los Angeles Business Journal

March 6, 1989

HUGE DEALS HINT OF CONSOLIDATION IN FILM INDUSTRY

By Michael Strempfel

[Cannon buys 21^st Century and sells to Golan]

Rumors swirled around Hollywood and Wall Street last week that Columbia Pictures and MGM/UA Communications Co. are both about to be sold. Such megadeals, if consummated, would be the latest in a series of recent Hollywood mergers and acquisitions that have dramatically consolidated the industry. In fact, the recent consolidation of showbiz has been almost as dramatic as its expansion during the early to mid-1980s. (See accompanying chart). Some industry experts are predicting the consolidation will reach gargantuan proportions.

"We will soon have entertainment supermarkets just like we now have financial supermarkets," said Jeffrey Wu, a consultant at the "financial supermarket" Merrill Lynch, Pierce, Fenner & Smith Inc. "These companies will have amusement parks, theaters, and production and distribution facilities for every conceivable medium -- video, TV, movies, cable, records, you name it." A recent report by Alan Kassan, media analyst at the New York investment house Shearson Lehman Hutton, concurred.

"Entertainment and media are on the verge of a new consolidation wave that will reshape the structure of the communications business in much the same way that ownership changes of the three television networks did in the mid 1980s," the report stated. "Our best guess is that after the next consolidation wave is over, five to 10 major media/entertainment companies will remain."

An increasingly prominent player in the show biz consolidation is financier Giancarlo Parretti, who was one of two parties rumored to be buying MGM/UA last week. (The other was Warner Communications Inc.) Parretti late last week pulled out of negotiations to buy the bankrupt De Laurentiis Entertainment Group, which filed for protection from creditors last August under Chapter 11 of the U.S. Bankruptcy Code.

His decision to give up on De Laurentiis after five months of active negotiations was reportedly based on De Laurentiis' entertaining of a sweeter bid from Hollywood-based Carolco Pictures Inc. He agreed to buy West Los Angeles-based New World Entertainment Ltd. on Feb. 24 for $263 million and already has a controlling stake in Los Angeles-based The Cannon Group Inc., which he bought in 1987.

Parretti is responsible for the founding of two new Los Angeles entertainment companies, as well -- Pathe Entertainment Inc. and 21st Century Distribution Corp. Pathe was founded last month with Alan Ladd Jr., the former chairman and chief executive of MGM Pictures Inc., as its chairman.

The new 21st Century was established last week as the independent production company of exiting Cannon exec Menahem Golan. (The original 21st Century was bought by Cannon in January for about $200,000, and Cannon agreed last week to sell the name to Golan. Cannon also has promised to provide Golan's new company with a minimum of $159.6 million in financing over the next four years.)

Pathe's offices have been set up in the Beverly Hills headquarters building of De Laurentiis Entertainment Group.Parretti's recent buying spree is one of the most dramatic examples of what has become an industrywide trend toward consolidation.

While small independent entertainment companies proliferated earlier in the decade through public equity and debt offerings, those financing channels dried up when the stocks of some of Wall Street's brightest Hollywood stars plummeted. Starving for cash, companies like New World, Cannon and De Laurentiis, have been selling out to keep afloat.

Original article http://findarticles.com/p/articles/mi_m5072/is_n10_v11/ai_7461449/print

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