After nearly four months of secret negotiations, Hollywood's MCA Inc. on Monday signed an agreement to be bought by Japan's Matsushita Electric Industrial Co. for about $6.59 billion in cash and securities.
MCA President Sidney J. Sheinberg said his company's need for a "strategic alliance," combined with pessimism about the economic future, led it to accept Matsushita's lower-than-expected offer of $66 per share in cash.
In addition, MCA shareholders will receive stock in a newly created spinoff company that will own MCA's New York-area TV station. Company officers have privately valued the spinoff at about $5 a share, raising the total payout to $71, though some Wall Street traders have said the new shares might trade as low as $3.
MCA--founded in 1924 as a booking agent for jazz bands and now the fourth-largest entertainment company in the United States--is the most diversified of the Hollywood entertainment conglomerates.
Among its properties are Universal Pictures, Universal Studios Tour in Universal City and a similar theme park in Florida, a publishing house, record labels and interests in cable television and movie theaters.
The firm has grown to become a colossus of films ("E.T.--The Extra-Terrestrial," "Jaws," "Back to the Future" series), records (Reba McEntire, Elton John, Guns N' Roses, Bobby Brown, George Strait) and television ("Murder, She Wrote," "Major Dad"). Its Florida and California theme parks are exceeded only by Disney's.
The deal is the largest takeover of an American company by a Japanese firm.
MCA, with about 17,000 employees, earned $192 million last year on revenues of $3.4 billion. Profitability has been erratic over the years, but the company has never been in financial trouble.
Matsushita, founded in 1918 by Konosuke Matsushita, who died last year at 94, is Japan's largest electronics company and is familiar to American consumers through such brand names as Panasonic, Technics and Quasar. It had $38 billion in sales in its latest fiscal year and earned $1.5 billion.
Among the world's top 20 corporations with more than 189,000 employees, Matsushita is following the lead of Japanese rival Sony Corp. in buying access to movies and recordings that can be played on its electronics products. Sony bought Columbia Pictures Entertainment last year for $3.4 billion.
Under the agreement, MCA left the door open to a higher bid by guaranteeing Matsushita up to $125 million in fees and expenses if the Hollywood company accepts any unsolicited offer from another company before the current deal closes.
One major shareholder, who declined to be identified, said that he did not regard such a bid likely.
"(MCA Chairman) Lew (Wasserman) would have dragged his feet if there had been a hint from the GEs or the Capital Cities of the world. But nobody was forthcoming."
MCA stock closed Monday at $65.125 a share, down 25 cents, on the New York Stock Exchange.
While most shareholders will receive cash from Matsushita, Wasserman, 77, will be paid a special issue of preferred stock for his 5 million of MCA's 92.8 million shares outstanding. The preferred stock will enable Wasserman to avoid the huge tax bill that might have accompanied a cash sale.
Breaking silence after months of closed-door negotiations, Sheinberg said in a telephone interview Monday that MCA had sought the alliance with Matsushita, a consumer electronics giant, to assure its own growth. "We felt in the world of the future, we were going to need more resources financially and otherwise than we felt we had or could get. We felt we had to be part of something more diversified," Sheinberg said.
In similar moves, there was Sony's acquisition of Columbia and Time Inc. acquired Warner Communications to become Time Warner Inc.
MCA had been seeking such a partner for years, but had difficulty finding a company that could afford an acquisition that Wasserman and others once believed would command $90 a share or more.
Sheinberg defended the purchase price as not only "fair, but something we could recommend vigorously." He added: "Would we have liked to receive more? Sure. If I told you no, you would say I'm the biggest jerk you've ever run into."
Some shareholders complained privately that MCA could have commanded more by waiting for a better economic climate. Wasserman's age and dim view of the world economy apparently militated against that. Sheinberg said MCA officers were "not optimistic" about the economy and doubted whether a change in the federal "financial interest and syndication" rules--which bar TV network owners such as General Electric Co. from owning studios--would have prompted a better bid.