In March, John Daly had one of Hollywood's hottest movies in "Platoon" and what looked like a cheap, easy way for his Hemdale Film Corp. to go public.
Now, the British-born film producer appears to have another box-office and critical hit in director Bernardo Bertolucci's "The Last Emperor." But he still doesn't have a public company.
Daly planned to merge the Hollywood company he owns with Computer Memories in Chatsworth, a former maker of disk-drive storage devices for personal computers that had pretty much liquidated itself into a shell of a company with about $30 million in cash. The company, whose stock continues to be traded, decided to sell its assets late last year after it was dumped by its main customer, International Business Machines, in 1985.
But merger agreements, unlike Hemdale's movies, don't always end as planned. Computer Memories called off the deal last month, and both companies say they are once again looking for merger partners.
The deal fell through because of Hemdale's ongoing legal problems with Vestron Inc., which accused Hemdale of breaking an agreement giving it the videocassette rights to "Platoon."
After Vestron, based in Stamford, Conn., missed a royalty payment, Hemdale broke its rights agreement. Vestron, however, has obtained a court order stopping the "Platoon" videocassette from being distributed by Hemdale and its new partner, Time Inc.'s Home Box Office.
"In our view, this produced a financial consequence to Hemdale that had not been anticipated when we first made the deal," said Frederic Heim, the Computer Memories director who has been handling the company's merger discussions.
Daly, however, said Computer Memories' directors over-reacted. The Vestron suit, he said, may even be settled in time to put "Platoon" in the video stores before Christmas.
Daly said he is especially disappointed because he had given Computer Memories time to settle a pending shareholders' lawsuit.
"I was disappointed that they got cold feet," Daly said.
In the merger agreement, Computer Memories would have technically bought Hemdale, although Hemdale would have emerged as the surviving company with a 78% stake. The company's name would have changed to Hemdale, and Computer Memories would effectively have ceased to exist.
This kind of merger method is commonly used when companies want to go public without paying large investment-banking fees or submitting to extensive government filings required when shares are sold in an initial public offering of stock.
Daly and Heim, despite the breakup of the Hemdale-Computer Memories deal, each said they expect little trouble finding another partner.
Daly said Hemdale is a more attractive merger candidate now because of the success of "Platoon," which won an Oscar for Best Picture and has grossed more than $200 million in the United States and in foreign markets. And early indications are that "The Last Emperor" will also be a hit.
Daly said he wants Hemdale to go public because, when the stock market rebounds, it will be in a position to raise money. He also believes that the financial "discipline" required of a public company would benefit Hemdale by forcing it to install more extensive auditing and financial reporting procedures.
He expects Hemdale's revenue to top $100 million this year, roughly double what it was a year earlier, and have pretax profit of about $25 million, although that amount would be reduced by any settlement with Vestron.
Heim said Computer Memories is also attracting interest as a merger candidate. In the wake of the market tumble, some analysts believe that merging with an existing public company is a more attractive way to go public than selling stock through initial public offerings.
For its part, Computer Memories still exists, albeit reluctantly, with assets that consist of an office, telephone and $25 million invested largely in commercial paper--an amount reduced from about $30 million because of the shareholders' settlement.
"It certainly is frustrating when you work eight months on a particular deal and it evaporates," Heim said.