BUSINESS

A MELODRAMA’S FINAL SCENE

JOHN DeMONT,PATRICIA CHISHOLM December 11 1989
BUSINESS

A MELODRAMA’S FINAL SCENE

JOHN DeMONT,PATRICIA CHISHOLM December 11 1989

A MELODRAMA’S FINAL SCENE

BUSINESS

MOVIE MOGUL GARTH DRABINSKY GIVES UP HIS STRUGGLE TO BUYBACK CINEPLEX ODEON

The saga of the rise—and subsequent fall—of Canadian movie mogul Garth Drabinsky contains all the elements of a Hollywood melodrama. Crippled by polio as a child, he compensated with insatiable energy, burning ambition and a flair for finance to become the boy wonder of the movie-theatre world. Now just 41, Drabinsky, whose personal motto is carpe diem— Latin for “Seize the day”—built Cineplex Odeon Corp. into the second-largest movietheatre chain in North America, with 500 locations in Canada, the United States and Britain. But last Friday, in a climax worthy of the most dramatic Hollywood screenwriter, Canada’s King of the Silver Screen resigned from the company he cofounded.

The closing act of the drama began last spring. In April, as doubts began surfacing about Cineplex’s financial health and its share prices began to slide, the Cineplex chairman, and a group of financial backers, tried to regain effective control of his company by attempting to purchase 7.3 million shares from Montreal’s powerful billionaire Bronfman family. But his action angered executives at Cineplex’s now-largest shareholder, Los Angelesbased entertainment giant MCA Inc. It threatened to go to court to block the bid, and Drabinsky’s group was forced to make an offer for all the Cineplex shares, a bid that he was unable to put together. In the end, time simply ran out and the theatre chain’s board of directors approved a plan to take Cineplex off the auction block and to sell some of its assets to reduce the company’s $625 million in longterm debt.

The combative entertainment lawyer has almost single-handedly revived the world of moviegoing. But for the past eight months, he had been playing the star role in a titanic struggle over Cineplex’s future. Clearly, Drabinsky’s association with the movies will not be forgotten—and may not be over. Said Norman Levy, chairman of Los Angeles-based New Century/Vista Films and a former vice-chairman of 20th Century-Fox Entertainment Group: “There is nobody that I know of, or who comes to mind in these last years, who has done as much for the theatre business.”

Drabinsky will receive $4.25 million and

former vice-chairman Myron Gottlieb $3.25 million as part of a termination agreement. They also agreed to buy the elaborately restored Pantages Theatre in downtown Toronto and the Canadian rights to Andrew Lloyd Webber’s musical The Phantom of the Opera, which is currently playing to full houses at the former vaudeville theatre, for an estimated $88 million. Said the two men, in a brief news release after their losing battle: “Over the past number of months, we have attempted to purchase the entire corporation and were unable to achieve this goal. Accordingly, we have decided to pursue other areas of activity within the entertainment and real estate industry.”

But that is likely little compensation for the tough, temperamental Drabinsky who, until last week’s resignation, was one of the most powerful figures in the North American entertainment industry. With Gottlieb, he built a company that today operates approximately 1,880 screens in three countries. Said Levy: “He built Cineplex into a monster compaay in damn quick time. He was certainly an underdog at that time and was taking on the big guys—he was an American dream.” Added renowned Canadian film director Norman Jewison: “He was a dynamic chairman, perhaps too dynamic.”

Born into a middle-class family in Toronto in 1948, Drabinsky’s life has been marked by a fierce determination to excel. A prolonged and successful struggle with childhood polio left him with an intense, driving energy. His demands for perfection and angry outbursts at colleagues who disappoint him have become

legendary—as has his obsessive drive to build a huge, diversified entertainment company. He also is known for his enormous ego. But, said Jewison: “In a business where the egos are so tremendous, he came up against some bigger egos than his.”

Before he was 30, he had established a busy entertainment law practice and produced six movies. Then, in 1979, he teamed up with veteran movie-theatre owner and mentor Nathan Taylor to found the first major chain of multiscreen movie theatres in Canada. Along

the way, Drabinsky used his considerable political skills and hard-driving salesmanship to win concessions granted to few others. In 1983, he convinced the federal Combines Investigation Branch to open up the Canadian movie-distribution market, then dominated by American companies, to competitive bidding. That change allowed Cineplex to grow at a breakneck pace.

When financial difficulties first surfaced in 1983 because of the company’s rapid expansion, Drabinsky convinced Charles Bronfman, co-chairman of Seagrams Co. Ltd. of Montreal, to provide cash support. That infusion, in return for a 30-per-cent share of the company,

also helped Cineplex buy the 297-screen Canadian Odeon Theatre chain in 1984. But, ultimately, the Bronfman bailout contained the seeds of Drabinsky’s downfall.

As his empire grew, Drabinsky poured millions into lavish theatres with innovative designs, providing snack bars that sold espresso coffee and featuring real butter on the popcorn. “He cleaned up the theatres. He gave viewers a clean white screen and great sound,” said Jewison. “The distributors didn’t care, and neither did the owners—they just wanted to make money. But Garth cared.” Drabinsky also began to build a prestigious—and expensive—live theatre division that bolstered the company’s reputation for supporting the arts—but also added to its heavy debt load.

Last April, discouraged by Cineplex’s uneven profits, Bronfman agreed to sell his 30per-cent stake in the company. Drabinsky lined up a group of investors with the $200 million needed to buy the Bronfman block. The purchase, together with the nine per cent still owned by Drabinsky and Gottlieb, would have given them effective control of Cineplex.

But that deal fell through. It was adamantly opposed by Cineplex’s largest minority shareholder, MCA, headed by president Sidney Sheinberg. While MCA owns 49 per cent of Cineplex, it has only a 33-per-cent voting share, a concession to Canadian ownership restrictions made in 1986 when MCA bought into the company. After Sheinberg learned of the Drabinsky bid last April, insiders say that he was incensed. He quickly blocked the attempt by obtaining a court order requiring a similar offer to all shareholders. That created a stunning new requirement for cash—between $700 million and $1.2 billion—that forced Drabinsky to look elsewhere for financing.

The pressure on Drabinsky grew quickly. The conservative Bronfman group subsequently publicly expressed its disapproval of Cineplex’s accounting methods and joined MCA in setting conditions for the bid. Such accounting firms as Los Angeles-based Kellogg Assog ciates also called Cineplex’s accounting methods into question. As the controversy grew, z Cineplex fell on the Toronto Stock Exchange from a 52-week high of $19% to $11% in midI November, and by last Friday—just prior to ^ the announcement that control had finally 5 slipped beyond Drabinsky’s grasp—it had dropped to $8%.

Investment analysts, however, say that with the fight for ownership resolved, the Cineplex share prices could recover. At the same time, Senator Leo Kolber, chairman of the Bronfman family’s holding company, Claridge Inc., and Drabinsky’s replacement as chairman of Cineplex, said that the company would try to cut its debt load “through some strategically planned asset sales.” For Drabinsky, that will be a sad ending to a once-promising script.

JOHN DeMONT

PATRICIA CHISHOLM

TOM FENNELL

MICHAEL HARRISON