By David Semple
In London, England, on Friday May 2nd 1986, Thorn EMI’s film division was sold by Australia’s Bond Corporation to Hollywood’s Cannon Group, run by the dynamic Israeli film maker Menahem Golan, who died last year in Israel. Thorn EMI Screen Entertainment, as it was then called, had been purchased by Alan Bond a week earlier for £125 million. Bond then flipped it to Cannon for £175 million pounds, realizing a handsome £50 million profit for the Australian entrepreneur in just one week. For Golan, and his cousin Yoram Globus, this led to the demise of their Hollywood-based film empire and the breakup of the Thorn EMI film company.
Less than one year earlier, in the summer of 1985, a boardroom coup at Thorn EMI’s corporate offices, at Thorn House in London’s St Martin’s Lane, set off a chain of events which led to the TESE “for-sale sign” going up in September 1985. Thorn EMI’s screen entertainment division was the largest British film and television company. Its assets included worldwide film and video distribution offices, the largest cinema chain in the UK under the ABC logo, now expanding into building multiplex cinemas, the Elstree film studios at which the Star Wars films were made, and a treasure of film history in its library of 2,000 films. Thorn EMI also owned 50% of Thames Television with its own TV library.
Gary Dartnall, TESE’s Executive Chairman, set about exploring the option of putting together a management buyout, with loans from Standard Chartered Bank and Guinness Mahon, a mortgage on the freehold and leasehold properties of ABC Cinemas and Elstree Studios and a junk bond offering through Bear Stearns and Company in New York.
Dartnall and his management team got a bit carried away with the amount of freedom they would enjoy after the conclusion of the buyout, however, as they had little money themselves to bring to the table. But reality took a few months to set in. As the company’s “for sale” sign became public knowledge, vultures began to circle TESE’s offices at Thorn House.
The Rank Organization was the obvious British candidate to buy the company. Rank had the money. Cautious Rank executives did become involved with the bidding. Thorn EMI wanted at least £100 million.
Menahem Golan and Yoram Globus, the two spirited and ambitious Israeli owners of the Cannon, wanted the ABC circuit. They were at the time trying to build a European-wide chain of cinemas in their bid to take on the Hollywood establishment in the international market. Cannon owned the old Classic and Star cinema circuits in Britain, making it the third ranking exhibitor behind TESE and Rank.
At first the Globus cousins made contact with Gary Dartnall in the hope of doing a joint venture buyout with the TESE management team. After that was rebuffed by the suspicious Dartnall, Golan and Globus formed a new joint venture with British property magnate Gerald Ronson to bid for TESE.
Thorn EMI’s directors favored the management buyout as the easiest option and were gentlemanly enough to give Gary Dartnall enough time to put his financial package together. Soho’s film industry was filled with rumors of imaginary takeover bids as the Thorn EMI deadline of October 31st passed by and was extended until the end of the year. Everybody in the British film industry wanted the management buyout to succeed.
The problem Dartnall faced now was the perceived failure of other previous bright lights of the British film industry, companies that had been lauded by the press as being more creative than Rank and EMI. In particular, Goldcrest Films had crashed big time after the box office failure of the ambitiously budgeted but dismal films Absolute Beginners, Greystoke and The Mission. Press stories about the expensive TESE forward commitments in film production investment didn’t help.
Investment banks were having problems completing the financing for Dartnall, who was now becoming more reliant on American sources to demonstrate the financial creativity that was lacking in London. Michael Garstin of Bear Stearns was looking for more high risk investments from junk bonds to reduce the debt for TESE. Increasingly, the problem was not just the high cost of buying the company, but also the cost of financing the working capital to fund the forward commitments and the interest payments on the debt.
British newspaper magnate Robert Maxwell had also approached Dartnall to get in on the deal. Dartnall’s first offer to Thorn EMI of £85 million was rejected. Rank came in at £95 million. Then Cannon and Heron went to £105 million. As December started, a tense winter of discontent set in at the TESE offices in Thorn House. Fear of an imminent Cannon takeover cast a shadow of paranoia over the Soho film industry.
Then independent producer David Puttnam began his obsessive campaign against Cannon, to defend TESE from what he perceived as a “foreign” Golan/Globus invasion of the UK film community. It was becoming apparent to many observers in the film industry that such criticisms of Golan and Globus were accompanied by a disturbing undercurrent of anti-Semitism. Ominous words from Menahem Golan about the EMI contracts were not welcome even if they made sense: “I haven’t seen the contract but if the deal with Begelman is that he has the right to make pictures at $15 million, well, that’s above the average Cannon production cost of $5 million. We would take on all commitments but we could try to put some logic into the deals. We can help to change the heaviness of the obligations because we are a major force in America.”
Gary Dartnall’s management buyout was in trouble. Thorn EMI wanted a deposit. Almost out of nowhere came Australian media magnate Alan Bond to the rescue at the beginning of December, flying into London on his private 727 jet airplane, saying to Dartnall, “I hear you’re having troubles with Robert Maxwell. Why not dump him and take me instead?” Dartnall and Bond flew by helicopter to look at Elstree Studios, with the Australian under the false impression that TESE owned Star Wars just because it was shot at the studio. A contract was signed between Alan Bond and the new management buyout company on December 8th and the Australian company put up £10 million as a non-refundable deposit to be paid to Thorn EMI in order to secure time to complete the buyout by the end of February 1986. Bond would take a minority stake in a new venture called Screen Entertainment Ltd. and he trusted that Michael Garstin of Bear Stearns, with his good track record, would successfully be able to raise the working capital for the new company.
The next day, a deal to purchase TESE by the Dartnall company for £110 million was announced. There was a huge sigh of relief by those in the British film industry who were happy to see TESE remain British and not fall into the hands of the unfairly vilified Cannon Group. Gary Dartnall was confident of the future when he announced, “Now it’s business as usual.” What followed were four months of tensions, delays and uncertainty.
Gary Dartnall entertained ambitious plans for Thorn EMI Screen Entertainment, a company which he felt had a unique role to play in the foreign markets, the so-called ‘rest of world’ (ROW) markets, which no other European company could play. TESE’s worldwide video organization, its reputable international sales arm, the ABC cinema circuit in the UK and the partnership with HBO in the North American video market offered a service that no other company outside of Hollywood could offer.
He wanted to expand TESE’s cinema exhibition arm into the United States by making affiliations with domestic US exhibitors, cutting them in on the UK side in return. Dartnall’s production strategy was centered around his new satellite development deals with independent British film producers and relationships with tried and tested American producers, who were looking outside of worldwide distribution deals with the major Hollywood studios. He thought that the company could be more successful without the corporate interference of the Thorn EMI board, returning the company to its ABPC roots as an independent film company.
Dartnall had started his career with Associated British Pathe in the late 1950’s, after which he worked in the United States for the next two decades, first in television and later as a representative for Anglo-EMI in Los Angeles. With this experience in America, Dartnall was convinced that it was important to expand the US side of the TESE business, possibly moving the head office to Los Angeles.
When he signed the deal with Alan Bond, Dartnall was not worried about interference from the Australian in running the new company. Bond had entered into the TESE buyout in order to get the Australian rights in the film library and did not want to put more than £10-15 million into the business. Any profits he received from his minority equity stake would be gravy. Despite having some capable people on his management team, Dartnall looked to recruit an experienced Chief Operating Officer from Lorimar because he felt that TESE’s people in London did not have sufficient corporate management experience for such a big organization. He was surrounded by old hands from the British film industry. The only man in TESE who was a proper entrepreneur was the 80 year old Nat Cohen, former head of Anglo-Amalgamated and EMI Films, and he was not part of the team.
As Bond’s people began to look more closely at the company during January and February 1986, the Australian was starting to feel the same about the management team as Dartnall. Bond was not prepared to guarantee the working capital for the buyout he so started to prepare for a worst case scenario, either risk losing his £10 million deposit or buy the company outright. He was relying on Michael Garstin of Bear Stearns, who had a good track record in these types of deals. Garstin kept telling the Australian not to worry about the working capital but Bond began to put together his own credit facility in the event of Dartnall’s failure.
To Bond’s people, Dartnall and Garstin looked disorganized and uninspiring, sometimes seeming confused and unable to give solid answers to hard questions. Bond’s team of well experienced corporate executives from Australia included Peter Mitchell, Peter Beckwith and Ken Judge. They overwhelmed the English film executives. The closer they looked at the company, the less impressed they were with the prospect of becoming involved in the deal.
Some of Bond’s colleagues began to see Gary Dartnall as a man with delusions of grandeur, a Lyndon B. Johnson type figure, wanting to be loved and part of the elite club in the film industry. One of Bond’s financial advisers put it bluntly: “Sitting on the Thorn EMI credit line, Dartnall’s ability to buy his way into the industry far outweighed any controls over him.” Thorn EMI managing director Colin Southgate would often get frustrated with Dartnall flying off to America on Concorde every week. That used to send him up the wall. Once, Dartnall flew to New York for a haircut and came back to London the same day. Dartnall was not a financial man and his management team in London never understood how to negotiate realistic contracts with American companies.
Fred Turner, the Managing Director of Rank Film Distributors, was very cautious, so cautious in fact that he was reluctant to spend his full line of credit from the Rank corporate board. Gary Dartnall, on the other hand, was so enthusiastic that he sorely needed somebody to hold him back. He sincerely believed that he was building a presence in the industry for TESE. Bond’s people were beginning to see him as just another bureaucrat with a big cheque book from Thorn EMI.
As one of Bond’s financial advisers stated, “You can’t first be Mr. Nice Guy with a cheque book or you’ll wind up being Mr. Nice Guy without a cheque book.” The American video market was exploding and the cost of purchasing these rights was rising very quickly, often bringing in $4 million per film just for US home video distribution. Without the Thorn EMI credit line, the new company would see a massive financial risk should some expensive titles fail at the box office.
Perhaps Bond and his executives underestimated the colorful British film executive. Dartnall did achieve some success a few years later as chairman of US television company Palladium Entertainment and subsequently served with distinction as chairman of BAFTA in Los Angeles.
The February deadline set by Thorn EMI came and went with another three week extension given to Dartnall. The credit facility much promised by Bear Stearns was proving to be elusive. Thorn EMI knew that Bond would take up his option to buy the company outright in the event that Garstin was unable to raise the working capital. Right up to the end, Bond and his colleagues tried to make the management buyout work. However, Michael Garstin was not helped in his endeavours by Bond’s involvement in the TESE buyout package.
Many of the US banks did not like Alan Bond. For example, two people on the board of Chemical Bank were members of the New York Yacht Club and they resented Bond’s approach to the America’s Cup. At a board meeting to discuss the TESE buyout, they made their opinions clear: “We don’t care how good your credit is, if Bond is involved we won’t touch it.” And Citibank would not touch a deal involving the Australian thanks to a silly loan to Bond made at the time of the 1974 world property crash. Bond eventually paid off the loan but there remained bad feelings between him and the bank.
The cost of making the buyout succeed became too high. On March 21st, Gary Dartnall was unable to complete the purchase of TESE and it was announced that Bond Corporation would acquire the whole company from Thorn EMI.
Bond company press releases reassured the British film industry that they intended to keep the company’s existing management team at the newly created Screen Entertainment Limited. In fact, Bond had already negotiated a severance package for Dartnall to the tune of US $1,000,000, payable in two cheques of $500,000 each, which inspired the newly enriched English executive to head off for a holiday in the Seychelles at the end of April to visit the location shooting of the TESE production Castaway, directed by Nicolas Roeg.
Bond flew off to Los Angeles to meet Menahem Golan and Yoram Globus of the Cannon Group at a Drexel Burnham Lambert junk bond conference during the second week of April. He was immediately impressed with the two Israelis and very enthusiastic about their somewhat novel views about how Hollywood should be run. Bond became determined to find a way of working with the Cannon owners. Unlike Dartnall, or others in London, or most Hollywood film executives, Golan and Globus were real film makers.
When the Trade and Industry Secretary in England announced that Bond’s takeover was not going to be referred to the Monopolies Commission, the Australian purchase of the Thorn EMI film division was completed on Friday April 25th 1986 but there was not yet a deal on the table with Cannon. The employees of TESE attended a dinner at the Ivy restaurant across the road from Thorn House to celebrate their future within the Bond Corporation.
A Bond Corporation financial adviser flew back to New York the same day only to receive a call on Saturday to come back to London on Monday morning for discussions with Cannon about their potential involvement with Alan Bond in running TESE. The aim of the Bond people this time was to ensure that the benefits in this new partnership didn’t flow to Cannon while the liabilities went to Bond. They drew up a proposal for Cannon to which Yoram Globus retorted, “We offered to invest in your company, not sell you ours.” The document included a price that one side would pay the other in the event that the joint venture collapsed.
At a meeting in Bond’s Chiswick home on Wednesday, Golan and Globus went into a side room, then came out with a price. Bond said, “Let’s do it.” A potential partnership deal had turned into an outright sale. Negotiations at the Cannon offices in Soho’s Wardour Street went late into Thursday night and ended at 5.45 am on the morning of Friday May 2nd. Present were 50 people, including 14 lawyers and 28 accountants. Cannon had arranged to display a massive photocopy of the cheque for the £175 million purchase price on their office wall during the negotiations. This was an incentive for the Bond people stay focused on the big picture during the long intense hours of discussion.
For Bond, £175 million represented a £50 million profit over the £125 million he had paid to Thorn EMI just seven days earlier. It was a fantastic triumph following his disappointment at the failure of Dartnall’s management buyout. But his worries were only just starting. Cannon was already under investigation by the Securities and Exchange Commission in New York over their finances, now that the value of their stocks was beginning to fall.
For the remainder of 1986 the Bond people were filled with anxiety over Cannon’s ability to complete the deal, with the purchase monies being paid out in stages. But this day belonged to Golan and Globus as they made a triumphant victory announcement to a shocked London film community. They had at last won their battle to become the biggest players in the British film industry.
After a revenge meeting at the ABC cinemas headquarters in Golden Square, where Golan and Globus laid down the new rules and sacked EMI bookings manager Noel Ford, the enthusiastic Israeli cousins made their way to Thorn House at the opposite end of Soho to welcome a mass gathering of TESE employees to the Cannon Group. Film maker Michael Winner, a long time supporter of the two Israelis, was in attendance. “You wouldn’t book our films in your cinemas,” announced Menahem Golan in all his glory, “So we bought your company!”
In Seychelles three days later, Gary Dartnall was dining with film director Nicolas Roeg and Castaway producer Rick McCallum when he found out about the Cannon takeover. Ringing the London offices, he listened as one of the office secretaries read news of the Cannon news from trade paper Screen International over the phone, responding with the words, “F*ck me, f*ck me.” Heading back to London on Wednesday, Dartnall cleared out his office. He actually had the guts to walk over to Cannon’s offices in Wardour Street to introduce himself to Golan and Globus, offering his services if required.
For Menahem Golan and Yoram Globus, this was their hour of triumph following years of being treated as upstarts by the Los Angeles film community. They couldn’t conquer Hollywood, but had done almost as well in conquering London. The Cannon team were true film makers, trying to help other film makers achieve their dreams. Director Barbet Schroeder, who made the film Barfly for Cannon, encountered many financial problems dealing with the company during production of the film, but he later admitted that he preferred Golan and Globus to other Hollywood studio executives.
Unfortunately, the Cannon Group was built on a house of cards of subordinated debt that was growing larger as interest payments on the junk bonds were increasing. Cannon was not getting box office hits in America. There were serious doubts about their accounting practices, which had begun to cast a dark shadow over the future of the company. The TESE takeover was their brief moment in the sun, but it came at a high cost for the Cannon Group, planting seeds that would end in the destruction of the company.
The Cannes Film Festival of 1986 became the Cannon Film Festival. Golan and Globus lorded it over their many admirers during the festival, but they couldn’t resist making public criticisms of their new acquisition to the international press. After criticizing the expensive Begelman deal negotiated by TESE, Golan announced, “EMI was taken advantage of in my opinion. I will check every contract. Producers will suffer.” Controversial “rollover” sales deals with worldwide sub-distributors deals were called “completely without justification.” A Thorn EMI production deal with Hollywood producer David Begelman was terminated by Cannon.
“TESE would have been bankrupt within six or twelve months if we had not taken over,” Golan told the press, “This company has obligations to meet that would have ended in disaster. The deals were incompetent and unfair to EMI. Every day we discover that this company is a huge treasure badly mismanaged.”
When Cannon entered the battle to purchase Thorn EMI Screen Entertainment in late 1985, there was an astounding outcry of protest from the British film industry and press that bordered on prejudice. In a nutshell, they were pictured as asset strippers, out to destroy TESE just in order to acquire the ABC theatre circuit. Menahem Golan was taken aback by the campaign of protest against their company. “The combination of Cannon and EMI gives us potential to compete with the majors”, announced Golan, “On its own EMI couldn’t do it. Cannon is not far from it, but together we definitely have the potential. We will be a major company.”
Golan perhaps suffered from delusions of grandeur, which is quite common in the film industry. He had clearly not planned to asset strip the EMI. He wanted to rationalize it. His ego was unfortunately too large. He wanted more than the cinema circuit. Cannon’s owners were building an international film empire and purchasing EMI was a huge statement of intent to the Hollywood establishment. Cannon was truly a force in the movie business. Golan used every ounce of publicity to show the film industry that Cannon had arrived in the big time. They now owned cinemas across the European continent, in addition to circuits in Israel and the UK, film studios all over Europe, and the film library numbering over 2,000 titles, combining Cannon with EMI.
However, the excessive £175 million price Cannon paid for TESE, in addition to the increased debts in America, undermined its already precarious finances. Cannon’s total debts were US $446 million, yet they still needed to borrow more money in order to complete the purchase of TESE. Short on box office hits and reliant on advance guarantees from sub-distributors, they needed either more junk bond debt or more bank loans. The Cannon house of cards would topple unless more money was found. An ongoing SEC investigation into its finances undermined this prospect.
Then Cannon’s share price tumbled and the first domino fell. Dozens of ABC theatres were being sold. The ABC Golders Green in London was sold by Cannon only to be flipped again at a much higher price. Bond Corporation disappeared out of the picture for a few months, only to become concerned when Golan and Globus were unable to make a payment of US $75 million in October. By December, Bond’s accountants looked at Cannon’s numbers and were confronted with an admission by Cannon chief financial officer Sue Beazley that their figures were more than a bit flaky, based as they were on broad assumptions. Cannon was suddenly facing the prospect of going bust. Bond Corporation did not cave in to Cannon’s requests for further delays on monies owed, confident that their money would be secure in the event of the company filing for bankruptcy. Yoram Globus offered some Cannon stock instead of money, which was rejected by Bond’s people.
The second domino was falling. Globus flew off to do a deal with Warner Brothers as quickly as possible so he could pay Bond. Warners did a deal which gave Cannon US $75 million in return for Cannon stock, in addition to the US video rights in a package of films. Cannon paid Bond US $50 million. All that remained outstanding was US $30.6 million in debentures maturing in four years’ time. Cannon found itself in freefall just eight months after their triumphant EMI takeover.
The third and biggest domino fell in March 1987. Cannon announced a deal to start negotiations about selling the 2,000 film EMI library to Weintraub Entertainment Group, a company owned by American film producer Jerry Weintraub.
The fourth domino fell in April with the termination of Cannon’s US video partnership with HBO, a company originally set up by Thorn EMI Video Programs. After two months of intense evaluation of the EMI library by teams of lawyers and accountants together with a film industry appraiser from America, Cannon agreed to sell the TESE film library to WEG for US $90 million. TESE, now Cannon Screen Entertainment, became Weintraub Screen Entertainment a year later. This was effectively the end of 60 years of film production by the company. There was not much left over from the TESE purchase still owned by Golan and Globus, apart from rights in a few dozen pictures. The remainder of the ABC cinema, not already sold off, remained with Cannon.
The fifth domino was Elstree Film Studios. This was sold to Brent Walker, a property development company, a year later, in 1988.
The final domino was the Cannon Group itself. On the verge of bankruptcy, Cannon was taken over by the Pathe Communications company of France, controlled by Italian financier Giancarlo Parretti. Menahem Golan left the company. Yoram Globus stayed with Pathe. Then, in 1990, Parretti repeated Golan’s mistake of dreaming big dreams, taking on more than he could handle. Pathe bought the famous Hollywood film studio MGM/UA. Parretti was removed from MGM after defaulting on payments to Credit Lyonnais Bank. Weintraub went bust too.
The EMI film library was sold to a French company, Lumiere. It now belongs to Studio Canal.
David Semple is a film maker and is currently writing a film screenplay for a documentary film called Jerusalem In The Age Of Imperialism