Drama off-camera in battle for MGM cinemas

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The Independent Online
The pitched battle for the MGM cinema chain, which ended in a surprise victory for Richard Branson's Virgin group late last week, may have been one of the hardest-fought on record, advisers to the companies involved said.

All-night negotiating sessions, ever-changing bidding groups and high- risk jockeying for advantage complicated what might have been a straightforward sale, and helped push the price to pounds 195m from estimates of about pounds 150m when the auction was launched last year.

Egos were bruised on several teams - nowhere worse, perhaps, than on the 35-strong group advising Rank Organisation. Rank, advised by Merrill Lynch, submitted a bid on its own, despite informal indications from the Office of Fair Trading that it would face scrutiny because it owns Britain's second-largest cinema chain.

Carlton Communications, the holder of two ITV licences and owner of a film processing operation, was desperate for the chain, and was a front- runner right up to the end.

Virgin came to the last round as a junior partner, in league with the US investment vehicle Reading and associate company Craig Corp, both controlled by the US entrepreneur Jim Cotter.

The hard negotiating then began. The sellers, Credit Lyonnais, represented by the bank director Antonin Pujos, were advised by SG Warburg, which organised meetings to discuss the bids of the five finalists.

In early June, events began to move quickly. CS-First Boston, adviser to Reading/Craig and Virgin, called Rank with an offer to join forces, on the assumption that Carlton had the edge. The new partnership of Reading, Rank and Virgin then asked for, and received, a 30-day period during which the sellers would negotiate exclusively with them. Within a week, however, Rank bailed out, preferring to stick to its own bid and apparently convinced its competition would be unable to finance an offer at a winning level.

Reading itself started to have second thoughts, concerned about financing the deal without the extra cash Rank had said it would provide. In a decision that all parties insist was amicable, Reading decided to call it quits.

Christian Purslow of CS-First Boston and Virgin Communications' chief executive, Robert Devereux, vowed to continue even as the odds seemed to be mounting against them.

On 25 June TPG, the US leverage buyout group, contacted Mr Devereux, offering to take an equity stake in a Virgin-led consortium. With TPG on board, Virgin asked the seller for four working days to complete a new financing package.

Credit Lyonnais was looking for the highest cash bid and was resolute that the deal would close on 30 June. But it was prepared to wait, knowing it had unconditional bids from both Rank and Carlton on the table.

By 3am last Thursday, Mr Devereaux and Credit Lyonnais' Mr Pujos had reached an agreement. Both Rank and Carlton, unaware that TPG had joined the Virgin bid and that Bankers' Trust had agreed to provide debt financing, had assumed the deal would come unstitched at the last minute.

Rank even had a plan to sign and close the deal on the same day, arranging to fly to Paris before the ink was dry to ensure support from the bank and the French government. It believed it could then weather regulatory scrutiny in the UK, provided it sold off some cinemas in areas where it now competes head-to-head with MGM.

In the event, Virgin got the deal it wanted, and control of Britain's largest cinema chain, leaving Rank and Carlton licking their wounds.