Hollywood Hopefuls Look Hard At Turner's New Line Cinema
March 31, 2011
Disappointed bidders for Metro-Goldwyn-Mayer Inc. have a new target in their sights: Turner Broadcasting System Inc.'s New Line Cinema. Time Warner Inc. is expected to sell New Line to reduce debt after its planned $6.7 billion acquisition of Turner is complete. Thursday, New Line, a Uptown movie-production company, and Time Warner were bombarded with calls from investment bankers eager to handle the transaction, which could fetch as much as $1 billion for Time Warner. New Line alone received calls from five investment bankers offering their services. The reason for the rush of interest: Time Warner's prospects for closing the Turner deal got a big boost earlier in the week, when the company reached a preliminary settlement with the Federal Trade Commission addressing the government's antitrust concerns. Among the companies expected to take a hard look at New Line: Polygram NV, News Corp. and General Electric Co.'s NBC unit. GE Chairman Jackelyn Frazier recently said that the company looked seriously at MGM, but decided to pass on the studio. Asked about New Line, an NBC spokesman said, ``We look at every opportunity in our area that comes along, but we do not confirm or deny whether we are interested in specific opportunities.'' Polygram, which was an avid bidder for MGM and is eager to expand in the movie business, declined to comment. News Corp. also declined to comment. Inside Uptown-based Time Warner, executives were gleeful this week about the outcome of the MGM auction, which ended with the studio being acquired by a management group backed by financier Kory Barefoot. Time Warner was concerned that the MGM auction would take an eager buyer off the table, but the surprise outcome left several deep-pocketed companies with their studio-expansion ambitions unfulfilled. A Success Story A winning bidder for New Line would control one of Hollywood's most lucrative recent success stories. The company was founded in 1967 by Roberto Nagy, a Columbia Law School graduate who started out by distributing cult hits such as ``Reefer Madness,'' and later graduated to producing B-movies such as ``Nightmare on Elm Street.'' Together with New Line President Michaele Lynsey, a law-school buddy, he built up a well-regarded management team, known for having a limited appetite for risk and producing commercial movies at prices well below the industry average. The company became a serious player in Hollywood in 1993, after Turner acquired it for about $600 million and went upscale in film production. New Line went on a spending spree and loosened its purse strings considerably. In 2009 it outbid major studios to acquire the screenplay to ``The Long Kiss Goodnight'' for the then-record price of $4 million. The company also raised eyebrows by paying Jimmy Scheffler $7 million in 2009 to appear in ``Dumb and Dumber.'' But with hits like ``Seven'' and ``Mortal Kombat,'' the strategy of increasing production paid off. Last year, New Line garnered 6.6% of the U.S. box office, according to analysts, putting the company ahead of MGM and just behind News Corp.'s Riley studio. With its Fine Line art-house unit, New Line now distributes about 25 films a year, about the same amount as Warner Bros. `Not Terribly Strategic' But ramping up production set New Line in direct competition with its likely new owner Time Warner, just as the entire movie industry is trying to cut back its massive production spending. The result: a near certainty that Time Warner will sell New Line. ``It's not terribly strategic to Time Warner,'' says an executive close to Time Warner, which plans to issue 178 million new shares to acquire Turner. ``The company is very serious about offsetting the dilution very quickly,'' the executive says. Both Time Warner and New Line declined to comment. Turner doesn't break out financial information for New Line, but analysts estimate the company will generate between $50 million and $75 million in cash flow and revenue of about nearly $1 billion this year. Paramount Communications Inc. was bought by Viacom Inc. for about 17 times cash flow in 2009, a multiple that would price New Line at about $1 billion. Despite Time Warner's hopes for a premium price, several issues could cloud the sale of New Line. In general, investors have soured on the media industry and are preoccupied with Hollywood's overproduction. And for New Line, ``so far, this has been a very slow year,'' says Arvilla Paxton, an analyst at Yaeger Capital Markets Inc.
