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For Panavision, a Blurry Picture

Dealmaker Ronald Perelman may have a long wait before his stake in Hollywood's dominant, though debt-burdened, movie camera company pays off

January 26, 2003|James F. Peltz | Times Staff Writer

Billionaire dealmaker Ronald O. Perelman hit one of his first home runs by buying and later selling Technicolor Inc., the venerable movie film processor, for a fat profit in the 1980s. He pulled off a similar feat a decade later with the television-production firm New World Communications Group.

Now Perelman is trying to score again in Hollywood with Panavision Inc., the dominant provider of cameras for shooting movies and TV shows. But nearly five years after he took control of the Woodland Hills-based company, Perelman is still waiting for the payoff -- if one ever comes.

Panavision is in financial trouble because it's buried under a huge mound of debt. The company's shaky condition largely was created by Perelman, who borrowed most of the cash to acquire his con

trolling interest in

Panavision in a

complex $680-mil-

lion transaction.

Yet the ques-

tion of Panavi-

sion's future is of

interest to more

than just Perel-

man and his

bankers. Al-

though it's a

relatively small

company, with

about 1,000 employees and 2001 revenue of $191 million, Panavision's role in Hollywood is so far-reaching that its financial health is of vital concern to the major film studios, movie directors and the television industry.

Inside and outside the company, the question is the same: Given the state of its balance sheet, will Panavision have the wherewithal to continue as the industry's dominant player, especially as Hollywood moves from film to digital production?

"I would be very sad if the company wasn't able to hang in there, but they're certainly making every effort," said Wally Pfister, a cinematographer whose credits include "Memento" and "Insomnia." "Their service is fantastic -- they've always been able to give me what I need."

As with most such "leveraged buyouts," Perelman was betting that Panavision would keep generating enough cash flow not only to handle that debt but also to enhance the value of the company so that the 60-year-old New Yorker could later sell out for yet another profit.

But the debt -- a combination of bank financing and junk bonds -- has so far strangled Panavision.

Although demand for its products remains strong, the company hasn't made money for years -- it has a cumulative net loss of $118 million since 1998 -- because its earnings get wiped out by interest payments on the debt.

"Was there too much leverage on this company? No question about it," said Howard Gittis, a longtime Perelman lieutenant and vice chairman of MacAndrews & Forbes Holdings Inc., Perelman's main investment firm.

But efforts are underway to reduce Panavision's debt, Gittis hastened to add, to bolster the company's prospects so that Perelman one day might be able to reap a reward on his investment.

Panavision -- a small part of Perelman's empire, which includes cosmetics giant Revlon Inc. -- unquestionably is a unique property.

At its 150,000-square-foot headquarters, a skilled workforce designs and builds all of the equipment. Nearly 80% of film directors and TV producers call up Panavision to obtain cameras and lighting equipment before they start shooting. (The company rents its wares instead of selling them.) "Titanic," "Harry Potter and the Sorcerer's Stone" and "The Matrix" are just three of the blockbuster titles that were shot with Panavision gear, as was every James Bond movie.

Renowned for Service

One of the reasons for Panavision's popularity is the company's renown for its global, 24-hour service. Directors shooting on locations from Malibu to Morocco can get immediate technical help. "There is always a lot that can go wrong out there in the muddy field," said Will Paice, Panavision's chief operating officer.

There's a lot that can go -- and has gone -- wrong in the executive suite, as well. This month, Panavision's president and chief executive, John Farrand, resigned when his contract wasn't renewed. The company, Gittis said, "has to be managed more aggressively."

This is particularly true as the entertainment industry shifts from its long reliance on film to digital production. TV already has moved rapidly toward high-definition and other digital equipment. While there is sharp debate as to how fast movies will make the migration, there is no doubt that moviemaking will further incorporate digital technology.

Panavision has a high-definition joint venture with Sony Corp., and its system was used in the first major digital feature film, George Lucas' "Star Wars: Episode II Attack of the Clones." Panavision also owns Efilm, a provider of digital post-production services for Hollywood. Still, Gittis said, "we were slow in rolling out" such initiatives.

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