Polygram film unit seeks European buyer

Date: 04/06/1998

By Peter Chapman

THE race is on to find a European buyer for PolyGram's film unit after the music and entertainment company fell into Canadian hands late last month.

The Canadian drinks giant Seagram already owns US studio Universal. It quickly made it known that it was interested in offers for PolyGram Filmed Entertainment (PFE), which it acquired as part of a 10-billion-ecu deal with Dutch electronics giant Philips.

“It does not seem like the Seagram management has any interest in PFE, although on the music side the PolyGram people are quite safe,” said one senior film industry source.

He added that PolyGram's new paymasters had given PFE president Michael Kuhn until the end of the year to find a buyer for the unit, valued at around 1 billion ecu.

Potential EU-based suitors include France's main pay-TV operator Canal Plus, the UK's Carlton Communications and EMI. Other surprise contenders are Germany's reputedly cash-strapped Kirch Group, still reeling from the European Commission's decision last week to block its digital TV alliance with Bertelsmann.

Canal Plus chairman Pierre Lescure made the early running, expressing interest in a tie-up with PFE if the 1-billion-ecu asking price were to be reduced.

However, sources hint that the company would be most tempted by a link with music group EMI, pointing out that PFE was born of a music industry parent and an EMI-PFE deal could 'resurrect' the film unit inside a familiar structure.

Meanwhile, there are fears that uncertainty over which buyer, if any, will emerge could lead to a brain drain away from the company - a key issue in an industry where personalities matter almost as much as cash.

Aside from Kuhn, who sits on the Commission film policy think-tank, key personnel include international director Stewart Till, who headed the British government's recent film review. Question marks also hang over the future of Kuhn's boss, PolyGram's highly regarded chief executive Alain Levy, thought to be the architect-in-chief of PFE's emergence as a major world film player.

“Kuhn's problem is keeping the management in place so that the assets remain and he can deliver a good deal to Seagram. They tried to create a European-based studio. They were nearly there and then the whole thing has been taken away from them,” said an industry insider. “But I think these people are committed to keeping the business they have created.”

Despite the 1-billion-ecu price tag, any deal to take over PFE will hardly set the corporate world alight. Yet the company's position as Europe's only film player considered capable of giving the US studios a run for their money adds to its political significance at EU level.

PFE virtually invented the Commission's recent film policy, pushing ideas such as the guarantee fund for audio-visual production and its prestigious Hollywood traineeships for bright young EU talent.

Audio-visual Commissioner Marcelino Oreja expressed the wish that a “European solution could be found” for the film branch of the company “whose successes testify to the revival of European cinema”, although he stressed that the Commission respected the freedom of choice of the firms concerned.

As speculation mounts over the ownership of PFE, the Canadian aspect of the Seagram deal appears to have resolved at least one issue.

The EU and Canada were set to lock horns in a World Trade Organisation spat over Ottawa's film distribution policy, following PFE complaints that it unfairly hindered the company's expansion plans in north America.

But Philips' decision to sell PFE to Seagram led to a quick response from the Netherlands government. “It was more or less decided that the issue should go to a WTO panel.

But obviously the Dutch government has now expressed the view that it is no longer interested,” said one Dutch source. Without this support, the case is unlikely to go ahead.