Los Angeles investor Marvin Davis and Prudential Insurance Co. of America said Tuesday they have agreed to acquire Spectradyne, the nation's largest supplier of cable television systems to hotels, from investment groups led by Texas billionaire Robert M. Bass.
The companies valued the deal at $635 million, but only $60 million of that amount is for the common stock of the company. The remainder involves Davis and Prudential assuming Spectradyne's debt and dividend payments on preferred stock.
The acquisition--subject to approval by the Federal Communications Commission--gives Davis an industry leader in a fast-growing and highly profitable business that complements his interest and holdings in hotels, entertainment and telecommunications. The deal also gives Davis a company he sought to buy in 1987, when he was outbid by the Bass-led groups.
Spectradyne, based in Richardson, Tex., was a pioneer in the business of providing pay-per-view movies for hotel guests. It now has about a 50% market share in that business, or more than 500,000 rooms nationwide, said John M. Mansell, senior analyst for Paul Kagan Associates, a media research firm in Carmel. Further expansion into more hotels, domestically and internationally, is expected, he said.
"We think the growth potential is excellent," Mansell said. He added that well over 1 million hotel and motel rooms nationwide are not yet wired for pay-per-view systems.
Perhaps the most growth may come from providing other services to hotel guests. Spectradyne and its competitors currently allow guests to pay their room bills and order room service via a cable link from the television set in the room. In the future, guests may also book accommodations, rental cars and airline tickets through the same systems.
"Anything that a traveler wants to do to make himself more efficient we want to see Spectradyne providing," said James E. Kneser, senior vice president with Davis Cos., the Los Angeles-based holding company for various Davis interests.
"We are enthusiastic about Spectradyne's future," Davis said in a statement. "It is a fast-growing technology company that links my interests in lodging, technology and entertainment. We look forward to building on its already-strong competitive position by expanding its products and customers domestically and internationally."
Davis, a billionaire largely through his Denver-based Davis Oil Co., also owns two luxury hotels and a luxury townhouse complex in Pebble Beach, four golf courses in the Pebble Beach-Monterey area, and three ski resorts in the Aspen, Colo., area.
Davis is a former owner of the Beverly Hills Hotel and 20th Century Fox Film Corp. He has in the past expressed interest in acquiring Aaron Spelling Productions Inc., CBS Inc., Lorimar Telepictures Corp. and the Dallas Cowboys professional football team.
Davis first agreed to acquire Spectradyne in 1987, for just over $400 million, but before that deal was consummated, the company accepted a higher, leveraged-buyout bid of $452 million from Hicks & Haas, a Dallas-based investment concern, and Acadia Partners, a Ft. Worth partnership that includes the Robert M. Bass Group, American Express Co. and Equitable Life Assurance Society. Davis had acquired 5.7% of Spectradyne's stock before the deal fell through.
Under the deal announced Tuesday, those groups agreed to sell their common stock to Davis and Prudential but will keep their holdings of the company's preferred stock, which will continue to be traded publicly. Those groups also stand to make a generous profit in the transaction, although spokesmen for Acadia would not disclose the size of the gain.
Davis spokesman Kneser acknowledged the much higher price paid by Davis now, versus what he had offered two years ago. Kneser said the company now "has a brighter future" than two years ago. Among other things, he said, use of pay-per-view is more widespread and the company's new management has introduced products and enacted cost controls.
Under the deal, Davis will own about 60% of the common stock of SPI Holding, the parent of Spectradyne, and Prudential will own the rest, Kneser said. Prudential also will be one of several senior lenders financing the deal.
Spectradyne is expected to report revenues of just over $110 million for last year. Earnings have not yet been reported.
John M. Lewis, Spectradyne's chief executive, will remain with the company and continue as a director. The deal, he said in a statement, "is of great benefit" to the firm and will help it "to expand our existing businesses and the new businesses we have developed even more rapidly."
WATCHING MOVIES IN HOTEL ROOMS
The number of U.S. hotel rooms served by pay-per-view movie services grew 24% between 1986 and 1988, to 968,000.
Source: Paul Kagan Associates