Chapter 583: Back and Forth

[Chapter 583: Back and Forth]

Before Christmas, specifically on December 20, just days ahead of North America's two-week long statutory holiday, Eric left East Hampton for the first time. His main purpose was to attend Quentin Tarantino's premiere of Pulp Fiction in New York.

As a film that established Quentin's reputation as a brilliant director in Hollywood, Pulp Fiction had already received unanimous critical acclaim during its preview stage. Following its release, it generated significant buzz among fans.

Although Firefly Films initially limited the movie to just 1,300 screens due to concerns over its content, Pulp Fiction's first-week box office approached $17 million. It easily surpassed the benchmark of $10,000 per theater, even outperforming other comedy films that competing studios had pushed for the Christmas release. After the Golden Globe nominations were unveiled on December 23, Pulp Fiction, boasting six nominations, saw its second-week earnings rise to $21 million.

Due to the star power of Bruce Willis and John Travolta, who both agreed to lower their usual salaries to work with Quentin after the success of Reservoir Dogs, the production budget for Pulp Fiction was under $10 million. Although Firefly invested over $10 million in promotion to ensure Pulp Fiction became a hit during awards season, the film's performance meant the company not only recouped its entire investment within those first two weeks, but also turned a profit.

Following Pulp Fiction, Interview with the Vampire also posted impressive box office results, earning over $47 million in its debut week, further demonstrating Tom Cruise's continued pull at the box office.

However, after Interview with the Vampire's release, Amy Pascal, who had been in negotiations with Cruise for the lead role in Mission: Impossible, regretfully called East Hampton to inform Eric that Tom Cruise ultimately declined to collaborate with Flower Films. After some direct persuasion from newly appointed Paramount Pictures CEO Sherry Lansing, Cruise returned to his old studio with the Cruise-Wagner Productions.

Thanks to the blockbuster action movies led by Sylvester Stallone and Arnold Schwarzenegger throughout the 1980s, Hollywood's 1990s landscape might have lacked other types of stars, but it certainly didn't lack in action stars. Eric could easily think of a list of actors comparable to Cruise, who would have been perfectly suited for the role in Mission: Impossible, such as Kevin Costner, Liam Neeson, Nicolas Cage, and Keanu Reeves. Consequently, Eric didn't feel too regretful about Cruise's decision; he merely instructed Amy Pascal to reach out to other stars. Eric's only curiosity lay in how long the collaboration with the fiery Redstone would last. Without the Mission: Impossible series, which Paramount was desperate to keep, it made Eric wonder if Cruise could still make a comeback if they hit a deadlock again.

...

Of course, this curiosity quickly faded into the background as Eric immersed himself in the joys of Christmas with the women and children, while an array of developments streamed in from Los Angeles.

Warren Buffett stayed in Los Angeles until December 27, engaging in multiple negotiations with Katzenberg. Ultimately, they couldn't reach any agreements. Although Buffett made some concessions, his terms remained difficult to accept. On the same day, Eric spent two hours on the phone with Buffett, who indicated he insisted on trading 70% of ABC's shares for equity with Firefly Films. Firefly would have to lower the percentage of shares they needed to part with down to 40%. Given ABC's current market value, that equated to trading $7 billion for a 40% stake in Firefly. Eric of course couldn't accept that, and the two sides abandoned further discussions. The very same day, Buffett returned to Omaha, while Firefly Films officially began preparing for a public acquisition.

...

After the New Year holiday, Chris, who had spent months preparing, officially required a seat on the LTD board with his LTD shares. He made a public offer to acquire LTD through Brighton Apparel.

LTD's CEO Leslie Wexner had noticed unusual activity in LTD's stock price before year-end, but Chris remained very careful throughout the process. It wasn't until the news broke that Leslie realized the seriousness of the situation. At that time, Chris owned 12% of LTD, unknowingly becoming the second-largest shareholder behind Leslie Wexner, who held 35%. Leslie understood that if Chris was allowed to smoothly join the LTD board and pulled other shareholders to his side, it could mean losing control of LTD.

In response, Leslie wasted no time executing a poison pill plan, publicly stating that if Chris's share exceeded 15%, LTD would issue additional shares at a price well below the public trading price to dilute Chris's shares.

Prepared ahead of time, Chris retaliated immediately. A lawyer representing Brighton Apparel stated at a press conference that Wexner's actions infringed on the rights of most shareholders to choose whether to sell their shares and constituted a "brutal raid" against other LTD shareholders who could not accept a low-priced offering. He requested federal regulators to intervene.

While denouncing Brighton Apparel and Firefly Investments for their hostile takeover, Leslie decided to hold a special shareholders meeting on January 20 at LTD headquarters to allow shareholder representatives to vote on whether to launch the poison pill plan.

As this unfolded, Brighton Apparel and Firefly Investments published a comprehensive development plan for the company after successfully acquiring LTD, claiming their actions were typical business acquisitions rather than hostile takeovers.

Meanwhile, Chris submitted a prepared series of documents to the SEC, and prior to the LTD special meeting, the SEC announced that LTD's poison pill plan, even if passed at the special meeting, would be deemed invalid.

Subsequently, Chris, as a joint representative of Brighton Apparel and Firefly Investments, put forth a $19-per-share acquisition price and, along with announcing Brighton Apparel's annual financial report from the previous year, introduced a series of financing plans for the purpose of acquisition.

Leslie, on the other hand, threw out a high bid of $35 per share, more than double LTD's market price. This move prompted a business magazine to label Leslie as "out of his mind."

In no time, both the acquiring and acquired parties were engaged in a fierce back-and-forth battle.

Although this business wasn't among the largest in the recent wave of acquisitions, it marked the first major leveraged buyout in a while after the so-called "junk bond king" Michael Milken went to prison and corporate raider Ron Perelman quieted down. Due to the unclear level of leverage held privately between Firefly Investments and Brighton Apparel, some even compared it to another high-profile acquisition of Revlon. A few years earlier, Ron Perelman had successfully taken Revlon with a mere $150 million, grabbing a company valued at $1 billion.

...

To support Firefly Films' plans, Eric chose to attend the Golden Globe Awards. Thus, he returned to Los Angeles in mid-January, but like many others, he was keenly observing Chris's back-and-forth maneuvering with Leslie Wexner. Even as an outsider, Eric recognized that Leslie was at a disadvantage.

However, Firefly Films was simultaneously busy preparing for the public acquisition of ABC, and Eric didn't have much mental space to ponder these developments.

Once the New Year holiday concluded, Firefly Films swiftly released its film slate for 1994. In addition to main titles like Saving Private Ryan, The Lion King, and True Lies, it planned reboots of some classic horror films under the New Line label. At the same time, Firefly's television department made an official announcement that after the fifth season of Friends, they would break their contract with Fox Broadcasting Network. Firefly would continue producing Friends while developing several new television series and reality shows to expand their television network business.

Although they hadn't publicly clarified the situation, everyone across North America who followed the news could sense that Firefly Films publicly acquiring ABC was just a matter of time.

After Firefly Films announced its 1994 film slate, the latest issue of Variety magazine flew off the shelves in early February, prompting the magazine to urgently print an additional 100,000 copies to meet demand.

The sudden interest in a publication typically geared toward Hollywood professionals was due to Firefly Films' unprecedented decision to publicly disclose its 1993 annual financial report in Variety.

In 1993, Firefly Films released 28 films, averaging over two per month. Thanks to the astounding box office performance of Jurassic Park, which raked in $447 million in North America, along with the success of films like Deep Impact, A Bug's Life, and the currently running releases like Ace Ventura 2, Pulp Fiction, and Interview with the Vampire, Firefly captured a 29% share of the box office landscape. The total North American box office approached $1.74 billion, boosted by the enormous success of Jurassic Park.

Fueled by the robust performance of films like Jurassic Park, Firefly's net profit soared to an all-time high of $1.19 billion, an increase of $200 million from the year before. Additionally, last year's profits for Firefly were just $30 million beyond those of Warner Bros., but the significant impact of long-time CEO Steve Ross's passing left Warner Bros. with a dip in their net profit of only $870 million, meaning Firefly has significantly surpassed Warner Bros. in profit by a whopping $320 million.

By comparison, all five companies following Warner Bros. -- Universal, Paramount, Fox, Columbia, and MGM -- had a total profit of less than $2 billion. Under Peter Guber's management, Columbia had some success with the box office of their collaboration with Firefly on Broken Arrow, but many of Columbia's other movies failed to turn a profit. Sony Columbia was still operating at a loss, and although MGM, under the guidance of John Calley and others, regained some strength, it still fell short compared to several flourishing second- and third-tier film companies. MGM's total films produced and released in 1993 amounted to merely a fraction of Firefly's output.

As the capital markets took a keen interest in Firefly's 1993 annual financial report, the company publicly announced its acquisition application to the ABC board in early February. Compared to the heated exchanges sparked by Chris's acquisition of LTD, ABC's reaction was much more measured.

In what seemed a response to Firefly Films' public report, ABC preemptively released its own profit statement for 1993.

Though it couldn't match Firefly's monumental $1.19 billion profits, ABC still achieved a net profit of $520 million, top-ranking among North America's major television networks with a market share of 23%. Keep in mind, only four national broadcast networks existed in North America, and since the rise of cable television in the 1980s, many premium cable programs began competing for prime-time viewership, constantly pushing down the market shares for the major networks. Achieving a 23% market share was a commendable feat, positioning ABC ahead of NBC, CBS, and Fox.

Following Firefly Films' public acquisition bid, ABC swiftly reacted. ABC's board chair and CEO, Tom Murphy, personally called Eric to state that if Eric intended to purchase ABC using a cash-and-stock method, then Firefly Films would have to handle a demanding 35% capital gains tax stemming from the cash transaction. This meant Firefly Films' cash offer could not fall below 1.35 times ABC's stock value at the time.

With ABC's stock consistently rising over this period, the market capitalization reached a staggering $11.2 billion, showing an increase of nearly $2 billion compared to mid-last year. Nevertheless, Eric was aware that this was an inevitable part of the process. Thus, he agreed on the spot. The most crucial task was to finalize the acquisition of ABC quickly; if the deal turned into a drawn-out back-and-forth, Eric would prefer to walk away and shift his focus elsewhere.

*****

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