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Cannon Deal May Not Bring New Cash : Analyst Suggests Company May Be Trading Its Stock for Debt

July 10, 1987|AL DELUGACH | Times Staff Writer

While Cannon Group's stock price bounced back further Thursday from a deep slide, speculation arose that the troubled firm might not be getting a new cash transfusion in the transaction that it announced Wednesday.

The Los Angeles film producer could be swapping 1.45 million shares of its stock for existing debt held by Intercorporation S.A., a European affiliate, according to a theory advanced by analyst Lisbeth R. Barron.

Barron, who has watched the company closely this year for the New York investment firm of Balis Zorn Gerard, said such a swap could help Cannon avoid triggering almost $50 million in payments to banks and bondholders.

For the second day, Cannon did not respond to inquiries by The Times about the meaning of its announcement of its latest deal.

Meanwhile, Cannon's stock price rebounded, closing at $4.25 a share, up 87.5 cents, Thursday on the New York Stock Exchange. In two days, it recovered $1.625, which was most of what it lost in trading Monday and Tuesday.

As reported, Cannon's announcement Wednesday did not say explicitly that the company was receiving cash. It said Intercorporation was acquiring the shares at a price of $8 a share, which would "bring $11.6 million in equity to the company." It stressed that the deal is subject to "final documentation."

Cannon had disclosed last week the receipt of $13.5 million in loans from Intercorporation, in which Cannon's two top officers own 25% each. The company's filing with the Securities and Exchange Commission said Chairman Menahem Golan and President Yoram Globus have posted their Cannon stock as collateral on these loans.

Barron noted that a swap of equity for the loans might get the company above the $37.5-million net worth set as a minimum in agreements on its bank loans and bonds. She said payments are triggered if the figure falls below the minimum as of the last day of the fiscal quarter for two consecutive quarters.

In such a case, the company would be required to pay back $25 million of bank debt, as well as redeem 10% of the $238-million face amount of its bonds, or another $23.8 million, for a total of $48.8 million. The deadlines for such payments would be 30 days on the bank loans and three months on the bonds.

Analyst Barron also speculated that the price of the stock to Intercorporation might have been set high at $8 a share to set a precedent for future company negotiations with bondholders for selling or exchanging their bonds. Cannon's bonds have been trading at 20 cents to 30 cents on the dollar.

It also is possible, she said, that Intercorporation might not go through with the deal and might sell the Cannon shares that it has purchased on the open market. Cannon's latest filing said Intercorporation had bought 800,000 shares on the market, or 11% of Cannon's outstanding stock. It is not known if it bought more when the stock was below $3 a share earlier this week.

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