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Japan Electronics Giant Gobbles ‘Jaws’ Maker MCA in Hollywood Megadeal

November 27, 1990

UNIVERSAL CITY, Calif. (AP) _ MCA Inc., one of America’s most precious entertainment gems, will be acquired by Japanese business giant Matsushita Electric Industrial Co. in a $6.6 billion deal that firmly establishes Japan’s presence in Hollywood moviemaking.

Even at that huge price tag - the largest ever for a Japanese purchase of a U.S. company - the deal announced Monday was mildly disappointing to investors who had been anticipating the purchase since it was first rumored in September.

The purchase, which includes Universal Studios, figures out to about $71 per MCA share. The takeover-starved market had been hoping for something closer to $90.

″I would be happier if it was more, sure. But I’m very happy with the price,″ said David Geffen, MCA’s largest single shareholder and head of Geffen Records, an MCA subsidiary. Geffen received his stock when MCA bought his record company last year.

The deal will bring Geffen more than $700 million.

But the buyout accomplishes an objective for Matsushita, which needed the entertainment ″software″ of MCA to complement its electronics ″hardware.″ The combination mirrors one struck by Sony Corp., which bought Columbia Pictures Entertainment Inc. for $5 billion a year ago.

With MCA in its fold, Matsushita will try to compete more effectively against its archrival Sony and shake its image as a copycat exploiting the technological advances of other companies.

Matsushita is Japan’s largest electronics company and is familiar to American consumers through brand names such as Panasonic, Technics and Quasar. MCA, which began 65 years ago as a booking agent for jazz bands, has grown to become a colossus of films (″E.T. the Extra-Terrestrial,″ ″Jaws,″ ″Back to the Future″), records (Reba McEntire, Elton John, Guns N’ Roses, Bobby Brown, George Strait) and television (″Murder, She Wrote,″ ″Major Dad″). Its Florida and California theme parks are exceeded only by Disney’s.

″Software and hardware have been developing simultaneously - they are like wheels of the same car,″ Akio Tanii, Matsushita’s president, said at company headquarters in Osaka, Japan. ″We intend that excellent works made by MCA will be distributed all over the world through a variety of media.″

Big foreign investments in Hollywood have become a regular occurrence since Rupert Murdoch’s Australia-based News Corp. bought 20th Century Fox in 1985.

Just this month, MGM-UA Communication Co. was purchased by Italian financier Giancarlo Parretti’s Pathe Communications for $1.3 billion. Disney said last month it was launching a partnership to raise at least $600 million from Japanese investors to make movies.

Until the MCA deal, Sony’s acquisition of Columbia was the largest Japanese purchase of a U.S. business. Sony also owns CBS Records.

The merged Matsushita and MCA will yield a far larger company. Their combined revenues in 1990 will be $51 billion, according to the Value Line Investment Survey. That compares with $27 billion for Sony-Columbia, and $11 billion for the largest studio-based U.S. conglomerate, Time-Warner Inc.

″This agreement ... will create synergies that neither company could achieve alone,″ said MCA Chairman Lew Wasserman, who is widely regarded as a leader and mediator for all of Hollywood, not just MCA.

MCA President Sidney Sheinberg said the decision to sell MCA was difficult, but a ″nothing short of a duty″ to shareholders and employees given the globalization of the marketplace.

″They have indicated their respect for our autonomy and corporate culture,″ Sheinberg said.

Despite those assurances, the acquisition seems certain to provide fuel for critics of Japanese investment in the United States, like the Columbia deal and the recent purchases of real estate trophies such as Rockefeller Center in New York City and Pebble Beach in California.

Matsushita is barred by federal law from owning one key MCA property, WWOR- TV in the New York area. That station will be spun off into a separate company with MCA’s current shareholders owning its stock.

Addressing another sore point, Matsushita said MCA’s Curry Co. subsidiary, which operates restaurants, hotels and other services in Yosemite National Park, will be sold within a year. Curry is a tiny though highly profitable fragment of MCA’s business. The idea of it being Japanese-owned produced harsh criticism.

Complaints go much further. The record producing and composing legend Quincy Jones, expressing the private fears of many in Hollywood, said recently that foreigners are being allowed to buy America’s legacy.

In addition, Jewish groups have protested Matsushita’s honoring of the Arab-sponsored boycott of Israel. ″Matsushita’s discriminatory policies are not only reprehensible on ethical grounds but contradict the bedrock principle of free and open trade between nations,″ the World Jewish Congress said in a statement Monday.

Most independent observers say Matsushita knows it is foolish to meddle with an American success that has never been duplicated abroad.

They believe it will follow the lead of Sony, which has lavished hundreds of millions of dollars on megastars like Michael Jackson and megaproducers like Peter Guber and Jon Peters, while adopting a generally hands-off style toward management of its U.S. entertainment holdings.

″It doesn’t help them to interfere in the creative process and interfere in the quality of the product for some philosophical, political or other purpose,″ said Jeff Logsdon, an entertainment analyst with Siedler Amdec Securities Inc.

MCA stockholders will receive $66 per share in cash from Matsushita, except for the 5 million shares held by Wasserman, who will get an equivalent amount in preferred stock in a newly organized Matsushita subsidiary for his shares. The MCA chief had sought to avoid having to pay taxes on a cash deal.

In addition, MCA shareholders will receive new stock in WWOR, which is worth about $5 per share of their MCA common stock.

There are about 92.8 million shares of MCA common stock outstanding on a fully diluted basis, making the deal worth nearly $6.6 billion.

MCA officials originally had hoped for better, but fears about debt-laden deals in a sluggish economy made credit tight and investors wary worldwide.

The disappointment was evident in trading of MCA shares Monday, which dropped 25 cents to $65.12 1/2 while leading the most active list of New York Stock Exchange issues.

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