BUSINESS

Closing credits

Charles Bronfman sells his stake in Cineplex Odeon

JOHN DALY April 24 1989
BUSINESS

Closing credits

Charles Bronfman sells his stake in Cineplex Odeon

JOHN DALY April 24 1989

Closing credits

BUSINESS

Charles Bronfman sells his stake in Cineplex Odeon

Over the past year, Cineplex Odeon Corp. chairman Garth Drabinsky has waged a fierce battle against professional stock market speculators in New York City and Toronto who are betting against his

company. Sensing weakness in Cineplex, the speculators—known as short-sellers—have been borrowing Cineplex shares from brokerage firms and selling them in the hope that the price will go down. By repurchasing Cineplex

stock later, for less than they sold it for, they can earn a profit. Drabinsky, in turn, has had the backing of a group of powerful investors— led by Montreal financier Charles Bronfman— who have been buying Cineplex shares, bidding up the price and squeezing the short-sellers. As the battle has raged on, Cineplex shares have fluctuated wildly between $9.62 and $19.37.

And last week, speculation was again swirling around Cineplex after Bronfman and his associates announced that they planned to sell their 7.3 million shares privately to another group of Drabinsky backers. But later in the week, they were forced to cut back the offering to 5.9 million shares after the Quebec Securities Commission told the buying group that it objected to the proposal and intended to examine it at a public hearing. The buyers include Toronto real estate developers Rudolph Bratty and John Daniels, and secretive investment dealer Gordon Capital Inc.

For the flamboyant and aggressive Cineplex chairman, it is the latest battle in a year-long struggle against the short-sellers. Since Drabinsky pulled the company back from the brink of bankruptcy in 1982, he has transformed it into North America’s second-largest movie empire—after New York City-based United Artists Theatre Circuit—with 1,825 screens in North America and the United Kingdom. But in order to finance the rapid growth, Drabinsky accumulated long-term debt that reached $816 million by the end of last year—almost double the company’s equity. And although Cineplex reported an overall profit of $49.7 million for 1988, those earnings were buoyed by the $58.7-million profit it earned from the sale last December of a 49-per-cent stake in its filmprocessing subsidiary, The Film House Group Inc., to the London-based Rank Organization PLC.

Indeed, focusing on Cineplex’s onerous debt load and disappointing earnings performance, speculators began short-selling its shares early last year. By April, the registered short positions on the Toronto and New York Stock Exchanges had grown to 255,400 and 77,700 shares respectively. In May, Bronfman-controlled companies began buying Cineplex shares. Meanwhile, Drabinsky has slashed Cineplex’s debt by selling assets. Earlier this month, he concluded the sale of Cineplex’s 50per-cent interest in Universal Studios Florida—an amusement park in Orlando scheduled to open in 1990—to Rank for $180 million.

Most market analysts have praise for Drabinsky’s continuing efforts to reduce Cineplex’s debt. But reactions among short-sellers appear to be mixed. Registered short positions on the Toronto exchange dropped to 417,700 at the end of March from their December high of 783,200, but in New York they have swelled to 1,437,700. Still, many analysts say that Drabinsky has made a shrewd move in arranging last week’s sale, which will assure him control of Cineplex. But his biggest challenge lies in convincing skeptical speculators that the company is back on a more profitable course.

JOHN DALY