NEW WOMETCO TO SELL SELL ITS THEATERS
Miami Herald, The (FL) - March 12, 1984
Author: LARRY BIRGER Herald Business/Monday Editor
When Miami-based Wometco Enterprises Inc. is acquired this spring, provided a last-minute glitch develops, one of the first moves of the new owners will be the sale of the company's 45 movie theaters.
Most probably, they'll also sell two of Wometco's best-known attractions -- the Miami Seaquarium and Citrus Tower in Claremont, in Central Florida.
Also on the block will be Wometco's vending division, which was built from scratch into one of the 10-largest machine-fed food-service operations in the United States.
Plans to sell these assets were disclosed in a voluminous proxy statement prepared for Wometco's proposed sale -- the largest leveraged buyout in the United States -- to the New York banking firm of Kohlberg, Kravis, Roberts & Co.In a leveraged buyout, the purchaser -- in this case borrows most of the money and uses the cash flow from the company's operations to pay off the debt over an extended period.
Wometco shareholders will vote March 29 on the proposed buyout at $46.50 a share. Also being sold to KKR is the 15 per cent of Wometco Cable TV Inc. that is held publicly. For that, stockholders will receive $29.50 a share.
If shareholders approve, and the Federal Communications
Commission also agrees to the transfer of Wometco's six television station licenses, the deal could be consummated as early as next month and cost KKR slightly more than $1 billion.
The buyout would mark an end to the empire that began in 1925 with Mitchell Wolfson and Sidney Meyers, both now dead, who opened their first movie theater on North Miami Avenue between Third and Fourth streets.
From that tiny start grew a leisure-time empire that 58 years later, in 1983, grossed $520 million and enjoyed after-tax profts of $30.8 million -- both all-time, one-year records.
KKR and its limited partners are financing their heir
purchase by borrowing $660 million -- including $500 million
from a group of banks headed by Continental Illinois of Chicago. Another major lender is Teachers Insurance and Annuity Association of America, which is putting up $27 million.
Van Myers and Arthur Hertz, who will stay on as chief executive and administrative officers, say sale of the amusement and vending units -- and also extensive real estate in Miami and Alaska -- was dictated by the need to raise cash to reduce the huge debt accumulated in the buyout.
"In the formula of a leveraged buyout, you have to convert into cash those assets that don't produce sufficient return to justify the debt," Hertz says.What will be left of Wometco will be split into two companies. Broadcasting will be headed by Anthony J. Cassera, president and chief executive officer of Golden West Television, owned by another KKR company.
Myers and Hertz will head up non-broadcasting, which will include the company's 47 cable TV systems in 163 communities and the soft-drink operations. Wometco is one of the nation's largest Coca-Cola bottlers with operations in areas that serve 12 million people.
But Myers is quick to point out the company will not be in a hurry to dispose of its expendable assets.
"This is no fire sale," he says, "We're not in a rush to sell. There will be no bargains. We'll only sell when we find buyers who are willing to pay a fair price."
The divisions up for sale, however, have not been among the company's star performers -- which is another reason to dispose of them. Wometco closed five theaters during 1983, and the division lost money in 1981-82 before earning a modest profit last year.
Seaquarium attendance dipped from 950,000 in 1980 to 525,000 in 1983, with the decline attributed to a general drop in tourism in South Florida.
Vending sales of $102.6 million in 1983 were slightly ahead of 1982, but income declined to $3.8 million from $4.5 million a year earlier.
Analysts who follow the company say what Wometco's new owners are doing is typical in a leveraged buyout.
"It's a very usual technique that you streamline operations by selling off extraneous, less productive assets and also real estate that is generally carried on the books at cost but could bring a big profit when sold," says Ed Tavlin, of Miami's Prescott Ball & Turben Inc.
Robert Beck, a partner in State Street Research and Management Co. of Boston, whose mutual funds hold a large position in Wometco, agrees.
"Vending is traditionally a very cyclical business that requires lots of capital. And motion pictures aren't the greatest growth business. I'd also think the company has very valuable real estate under the theaters. So it's an intelligent way for them to reduce the leverage and not sell off the better assets."
Beck also says KKR, an outsider with no emotional ties, will have an easier time selling off company holdings than the Wolfson family. "It's very difficult for the family to take an objective view. It's tough for them to sell."
Except for two of its members, the family will be out of the picture once the sale is completed.
Mitchell Wolfson Jr., son of the founder, who will be paid $84.5 million for his holdings, will remain as one of Wometco's seven directors. He is investing $7 million of his own money to become a limited partner.
Louis Wolfson III, a grandson who is a vice president in Wometco Cable and whose holdings of more than 1 million shares are worth nearly $50 million, is buying a small equity position
Together, 31 company employes will wind up with 5.9 per cent of the non-broadcasting side and 4 per cent of the broadcasting side. But they'll have to pay $5 for each share they acquire.
They were given the ownership option in the restructured companies, each of which will have 15 million shares of privately held stock.
Hertz, 50, who will receive more than $2.2 million for the Wometco shares he holds, will emerge as the largest shareholder among current managers by paying $1 million for 200,000 shares in the two new companies.
Myers, 66, who will get nearly $1.4 million for his Wometco stock, will pay $200,000 for 40,000 shares.
KKR, meanwhile, will receive $10 million for negotiating the purchase agreement and will receive annual fees that start at $600,000 and increase at a compound rate of 10 per cent yearly for managing the surviving companies.
Drexel, Burnham Lambert Inc., a New York investment banker hired to render an opinion as to whether the $46.50 price was fair to the stockholders, is being paid $4 million.
Merrill Lynch Capital Markets, which also rendered a favorable opinion, is getting $200,000. And Continental Illinois will receive $1.2 million for bringing Wometco to the attention of KKR.
Not all shareholders are pleased with the price. Several class actions suits have been filed with one litigant claiming the price is "grossly inadequate and unfair." Another maintains that Wometco's board had earlier turned down more than $50 a share.
Analyst Tavlin calls the $46.50 "a full price" since Wometco is selling for 28 times 1983 earnings. "But its earnings are growing rapidly," he maintains.
Adds State Street's Beck: "I think it's a fair price, and it could be underpriced. Wometco has some very valuable assets."