Rollover And Die
Posted on March 12, 2018
Thorn EMI House, St Martin’s Lane, London
Rollover And Die
By David Semple, former employee of Rank Film Distributors and Thorn EMI Screen Entertainment, 1979-1986.
In London, on Friday May 2 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 (מנחם גולן), who died four years ago in Yafo, Israel. Thorn EMI Screen Entertainment, as it was then called, had just been purchased by Australian businessman Alan Bond a week earlier for £125 million. Bond flipped it to Cannon for £175 million pounds, realizing a handsome £50 million profit in just one week for the Australian entrepreneur. This was typical of Bond, who later went to prison. For Golan, and his cousin Yoram Globus, this led to the demise of their Hollywood-based Cannon Group and the breakup of the newly-named Cannon Screen Entertainment.
EMI was a British firm. The UK’s major film companies, Rank and EMI, went under during the closing years of the 21st century. EMI, the music company, was the last remaining independent major label in the world before it was swallowed up by Guy Hands in August 2007 and then it ceased to exist in September 2012, except as a logo in the Universal group. Then former EMI company HMV went bankrupt, only to be taken over by a Canadian financial group. Thorn EMI Screen Entertainment, the film and television production and distribution company, was sold, then resold and asset stripped. The Thorn EMI film library was Britain’s largest and it is now owned by the French conglomerate Studio Canal, a sister company to Universal.
EMI, or Electric and Musical Industries, was formed in 1931 with the merger of the His Master’s Voice label and Columbia Gramophone Company, becoming both a record label and a recording equipment and gramophone manufacturer. As the company expanded into other fields, such as radar, guided missiles, television broadcasting equipment and television sets, it also started the HMV record store chain and built the Abbey Road music studio in London. In its early days it was part-owned by RCA Records. EMI became a major record label in the United States when it purchased Capitol Records. This was followed by decades of success in the popular music field with artists like Frank Sinatra, The Beatles, The Beach Boys and Radiohead, in addition to its prestigious classical music label. EMI Music Publishing. In 1969, EMI decided to enter the film business.
Associated British Picture Corporation (ABPC) was founded in 1927 as British International Pictures (BIP). Alfred Hitchcock made several film classics for BIP, including the first British sound film, Blackmail. ABPC was one of two British film companies that made up the duopoly which dominated the British film industry for over sixty years. The Rank Organization owned Gaumont British Picture Corporation, the Odeon cinema circuit and General (later Rank) Film Distributors, with film production studios at Pinewood. Rank’s golden years of film production were the 1940s, during which they financed and distributed classic films made by Michael Powell and Emeric Pressburger, including The Life And Death Of Colonel Blimp, Black Narcissus, A Matter Of Life And Death and The Red Shoes. A Rank production, Lawrence Olivier’s Hamlet, won the Best Picture Oscar in 1948. The Rank film library contained over 500 films. The ABPC film library contained 2,000 films. ABPC owned the ABC cinema circuit and several film distributors, including Associated British-Pathe and Anglo-Amalgamated Film Distributors. It’s film studios were located at Elstree, west of London. Rank owned 25% of Universal Pictures and distributed Universal films in Britain for almost four decades. ABPC was partly owned by Warner Bros; they formed a joint venture called Warner-Pathe. Both Rank and ABPC produced films in England and financed co-productions with major independent producers. These films were sold overseas through their international sales companies based in Soho, London. Associated British Television saw international success with the long running TV series The Avengers, which was broadcast on US television network ABC.
ABPC owned 50% of Thames Television, which owned the ITV franchise for weekday television in London, making ABPC very attractive to companies wanting to enter the film business. Warner Bros’ new corporate owners, Seven Arts, decided to offload its shares in ABPC, which were then sold to EMI. A hostile takeover bid by EMI for ABPC followed. Nat Cohen, who had sold his company Anglo Amalgamated to ABPC several years earlier in return for shares in the parent company, now decided to sell his ABPC shares to EMI, which allowed the music giant to gain control of the company. In return, Nat Cohen became distribution supremo of the merged AB-Pathe and Anglo companies, now called Anglo-EMI Film Distributors. After a brief period as production head at EMI studios, film producer Bryan Forbes resigned and Nat Cohen assumed control over all EMI film production and distribution.
British production costs were relatively low during the 1970s. The average Carry On film or Hammer horror cost around £250,000. Nat Cohen took a big gamble in financing the film based on Agatha Christie’s Murder On The Orient Express with an unprecedented British $1,000,000 production budget. He was rewarded with a worldwide hit. Barry Spikings and Michael Deeley of British Lion Films went one step further in shooting the expensive Nicolas Roeg film The Man Who Fell To Earth in the United States. EMI took an even bigger step in buying British Lion in 1976 and putting the Lion team in charge of production and distribution at EMI Films. Then Spikings and Deeley at EMI went for the American market, producing American films out of London. They won the Best Picture Oscar with The Deer Hunter in 1979. EMI got its films into the US theatrical market by concluding a distribution deal with Universal Pictures.
In 1979, Thorn Industries, a lighting company, purchased EMI, which now became Thorn EMI. EMI Films co-produced David Lynch’s The Elephant Man, which became an international success and was one of the few British films that became a huge success in Japan. EMI overseas sales supremo Michael Bromhead gathered $5,000,000 in overseas pre-sales from foreign distributors on the new $30 million production Can’t Stop The Music, featuring music by the Village People. YMCA and several other musical numbers were featured in the show reel of the film at the Cannes Film Festival. Thorn EMI was shelling out $30 million on another production, Honky Tonk Freeway. Everyone at Thorn House was anticipating a repeat of the success their new company had previously seen with The Deer Hunter. Then, Can’t Stop The Music was delivered in 1980 and it was a disaster. Poor Michael Bromhead had to refund many of the distribution advances paid from overseas distributors of the film. Michael Deeley left the company to start production on Blade Runner. Barry Spikings didn’t last much longer. The Thorn executives brought in Brian North from Burtons Menswear to put Thorn EMI Films back into financial order. Verity Lambert of Dr. Who fame was hired to run film production.
Things were still a mess at EMI in 1983. The video company and the film company were in a “cold war” situation with each other. Communication between the companies was very poor. Verity Lambert began producing low-budget British films from the 4th floor of Golden Square whilst Phillip Nugus, at Thorn House in St. Martin’s Lane, supervised the expansion of Thorn EMI Video. There was no overall strategy.
Enter Gary Dartnall. Gary Dartnall was a former ABPC and EMI executive who worked in the United States for twenty years. With an expensive employment contract from Thorn’s video hardware company, which just closed in America, Thorn executive John Sibley was in a panic as to what to do with Dartnall. Thorn EMI decided to put all their film and video entertainment companies together under one corporate umbrella with Gary Dartnall as the new executive chairman. Sibley felt this would justify Dartnall’s existing salary of US $200,000 per year. Poor Brian North was shown the exit door after he was found unsuited for the film business. One EMI executive felt that “he may have known how to cut a suit at Burtons but this is not the same as cutting a film”. Phillip Nugus was not happy in having an outsider looking over his shoulders after all the work he had done in setting up an international video distribution empire. Dartnall and Nugus had several clashes which resulted in Nugus leaving the company in 1984.
Gary Dartnall sounded like an American to the Brits at Thorn House and sounded like an English lord to people in Hollywood. But he knew the American side of the business very well and had a good network of contacts in Los Angeles. He commanded loyalty from his former colleagues at EMI Films and rationalized some of the excesses of empire building at Thorn EMI Video. The formation of Thorn EMI Screen Entertainment, commonly called TESE, from the mess of Thorn EMI’s incompatible film and video companies, saw the start of a film investment program that exceeded £100 million per year. This was to become the most ambitious film investment program by any British company since the days of J. Arthur Rank in the 1940s.
TESE acquired worldwide distribution rights in hundreds of films and kept the US video rights in most of its co-productions with American companies. The 1980s was the era of the mini-majors, with companies like Cannon Films, Orion Pictures, Dino de Laurentiis’ DEG and Roger Corman’s New World Pictures all trying their hands at direct distribution in America while offloading foreign rights in territory-by-territory deals which maximized their earnings potential while giving them the chance to cash in on the US market’s lucrative 30% theatrical distribution commission instead of paying that money over to a major studio. These companies could dream of glory, as TESE would too, over the next few years as they tried to take on the monopoly of the traditional Hollywood Studios. De Laurentiis invented the “pre-sales” industry himself during the 1960s and now struck several deals with Gary Dartnall.
A new production company, Silver Screen, gave TESE foreign rights to films financed from junk bond offerings, with HBO as the US partner. The advantage of these deals outside the studio system was being able to avoid fully cross-collateralized worldwide contracts, allowing the mini-major or the independent producer to see some profits from success in the foreign markets in spite of box office failure in the US market, or vice versa. The Silver Screen deal was seen as a big coup for Gary Dartnall. Most new contracts now gave TESE worldwide video rights, in films like Highlander, where TESE controlled all rights except North American theatrical rights, which were sold to 20th Century Fox, a company better able to exploit the difficult US theatrical distribution market with its expensive prints and advertising costs. TESE formed a video partnership with HBO, thus merging their already successful American video company into Thorn EMI/HBO Video. This was followed by a series of expansive but expensive deals with DEG, George Harrison’s HandMade Films, Kings Road Entertainment, and independent producers such as former Columbia Pictures production head David Begelman and American producer Elliott Kastner. But the cost of entering into the international market for a company as ambitious as TESE became very high. In order to get guaranteed packages of films from America that sold well in the foreign markets, TESE was having to pay above the odds and take a bigger risk. The US production program for EMI in the late 1970s and early 1980s had seen great successes followed by a run of dreadful failures, and it was closed down in 1982. A new British production program under Verity Lambert was not ambitious. Her films did not do well at the box office. There were some nice pictures, for instance Restless Natives and Comfort And Joy, but nobody wanted to see them. Wild Geese 2 was an expensive flop and Morons From Outer Space couldn’t even get a theatrical release in America. For EMI, it was now essential to acquire the rights in a factory-like production line of films from major US output deals. Either TESE purchased enough films or the company would be forced to close down the EMI distribution offices in the overseas territories.
Menahem Golan, Co-Owner of Cannon Group
The criticisms of Gary Dartnall’s ambitious business deals made by Menahem Golan and Yoram Globus of the Cannon Group a few years later were thus unfair. For TESE, going big time into the global film distribution business was going to be expensive until such time as the company could get a few hits at the box office. Many films which the company produced or part-financed were successful on home video. Rambo 2 was a hit. Amadeus won the Best Picture Oscar. There were other good films coming out of the Dartnall era. One project was an epic eight-hour version of Charles Dickens’ Little Dorrit. Another was David Lean’s final feature film, an adaptation of E M Forster’s novel A Passage To India.
The madness at Thorn House finally set in during the spring of 1985. John Simenon was the Belgian son of Inspector Maigret author Georges Simenon. Dartnall appointed him to take charge of international marketing. Perhaps it was the language barrier. Or maybe cultural differences between Simenon and his colleagues. Something went wrong in the overseas sales department on the fourth floor of Thorn House. Simenon began to develop some very strange ideas about selling films, which flew in the face of logic. Or so thought many of the EMI accountants and sales people. Simenon invented a new concept, straight from Planet Mars, called the Rollover Deal. All his overseas theatrical deals became “rollovers”. They were somewhat different from traditional sales deals, wherein advance guarantees were paid to EMI. They were always non-refundable. EMI’s local distributors did a better job when they shared the financial risk in the film. To recoup their advance guarantees, distributors spent money on prints and advertising in order to make films successful. Thus, financial risk resulted in box office success, or failure depending on the film, but at least the cash advances paid to paid to EMI gave distributors an incentive to properly exploit films.
John Simenon, on the other hand, negotiated to obtain better financial participation from the overseas theatrical markets. Rollover deals allowed advance guarantees paid to TESE to be refunded to foreign distributors for films which went on to fail at the box office. Ergo, TESE was completely exposed to the financial risk in overseas distribution. This may have worked fantastically for a Star Wars picture. But it was a disaster for a box office flop like Wild Geese II. How Simenon sold this bizarre business concept to Gary Dartnall is a mystery. Perhaps Dartnall misunderstood the Belgian. Deals like this were making the accountants at Thorn EMI nervous. People began to say, “Rollover and die”.
Thorn Electrical Industries and EMI were both built on the acquisition of other companies, leading to the growth of diversification but also the decline of business focus. EMI’s acquisition of ABPC made sense as the music and film businesses fitted well together. It was all the other companies that didn’t fit. But Thorn EMI’s senior management board had no vision. Thorn initially made a bid for EMI in the 1970s. However, EMI founder and chairman Jules Thorn stepped in to stop this nonsense. Following his retirement at the beginning of 1979, new Thorn chairman Peter Laister purchased EMI by paying over the odds. What happened to the merged Thorn EMI was typical of the modern business world. Portfolio management was replacing capitalism.
The 1980s were not kind to the elephantine Thorn EMI. The company was all over the map. With a portfolio of unrelated businesses across a broad spectrum which included rentals, lighting, retail, defence industries, computer software and TV manufacturing, the successful companies were being strangled by the less profitable businesses. How film and music fitted into this smorgasbord of hardware companies was a mystery. Then madness set in at Thorn House when Peter Laister made an unsuccessful and unfocused bid for British Aerospace. The fallout from this failed gesture in corporate incompetence led to the boardroom coup which ousted Laister in June 1985. New Thorn EMI corporate chairman Graham Wilkins put computer entrepreneur Colin Southgate into the managing director’s chair. Southgate decided to focus on the strengths of the core businesses that built both Thorn and EMI, divesting itself of the peripheral businesses. This included disposing of TESE and Thames Television, the leftover businesses from ABPC.
Many critics thought Colin Southgate made a big mistake here. Music and film sit well together as businesses. Gary Dartnall was absolutely correct when he told the press that the senior management board at Thorn House did not understand the film business. Neither had the board of EMI before them. TESE became the first company for the chop in Southgate’s core business strategy. But what did Southgate know about entertainment. After all, he was just a computer man.
Events moved quickly following the boardroom coup. The Thorn EMI “for-sale sign” for TESE went up in September 1985. Sixty years of history was about to go out the window and into a dustbin of debt. As soon as the first whiff of boardroom treachery began to reach TESE executives on the fifth floor of Thorn House, a sense of unease set in. This was followed by panic. And then desperation. And finally it became despair in the spring of 1986.
Thorn EMI’s filmed entertainment divisions were important to the British film and television industries. Not just TESE, with its film and video companies, its 2,000 picture film library, its ownership of the largest chain of cinemas in Britain, its film studios at Elstree, where the Star Wars pictures were produced. Thorn EMI also owned 50% of Thames Television, with its massive TV library. TESE and the Thames were an inheritance from Associated British Picture Corporation.
Gary Dartnall and his fellow directors set about exploring the various financing options of putting together a management buyout of TESE. Their financial advisers wanted to pay for the buyout with loans from Standard Chartered Bank and Guinness Mahon. They had no other choice but to use banks loans against the company’s assets to raise the money with which to purchase the company. None of the directors had any significant amount of money of their own. Thus, the freehold and leasehold properties of ABC Cinemas and Elstree Studios were mortgaged. The rest of the financing, including working capital with which to run the new company, was to be funded with a junk bond offering through Bear Stearns and Company in New York. With the massive property boom that was taking hold in the UK the cinema properties were now actually undervalued by the banks. Dartnall and his management team got a bit carried away with the amount of freedom they thought they would enjoy after concluding the buyout. 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 money and assets. TESE would fit inside Rank like a glove. Cautious Rank executives did become involved with the bidding. Thorn EMI wanted at least £100 million. Menahem Golan and Yoram Globus, two spirited and ambitious Israeli owners of the LA based Cannon Group, wanted the ABC cinema circuit. They were trying to build a European-wide chain of cinemas in order to take on the Hollywood establishment in the international market. The Israeli cousins were treated as outsiders in Hollywood, finding it hard to enjoy success in the lucrative American theatrical market. Golan and Globus had crafted a mountain of junk bond debt in America. Their financial house of cards would eventually crumble once Cannon made too many box office flops. But on the surface they looked like a reasonable force on the international film business. They owned the old Classic and Star cinema circuits in Britain, making Cannon the third ranking exhibitor behind TESE and Rank.
At first Golan and Globus made contact direct with Gary Dartnall. They offered to do a joint venture buyout with the TESE management team. After this was rebuffed by the suspicious Dartnall, Golan and Globus formed a new joint venture with British property magnate Gerald Ronson to bid for TESE.
The Thorn EMI board of directors favored a management buyout as the easiest option for offloading the company. They 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 failure of Goldcrest Films, which suffered massive financial losses after the box office failure of Absolute Beginners, Greystoke and The Mission. Press stories about the expensive financial commitments of TESE did not help Dartnall. Fear of the company being purchased by asset strippers began to panic British film producers. Rank and EMI were the established pillars on which the British film industry was built. Producers saw the advantages to the film industry offered by the integrated structures of Rank and EMI, with their production, exhibition and distribution arms. Within a dozen years, however, the duopoly would be gone. First EMI disappeared in 1986 and then Rank in 1997.
Investment banks were having problem finding the money for Dartnall’s buyout. He was now becoming more reliant on American sources to finance the company. Dartnall and some of his colleagues felt that financial creativity was lacking in London. In fact, Dartnall’s people had no money. Michael Garstin of Bear Stearns And Company 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 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 November turned into December, a tension-filled winter of discontent set in at the TESE offices in St. Martin’s Lane. Fear of an imminent Cannon takeover cast a shadow over those who despised Golan and Globus in the Soho film industry. Out of nowhere came protests against Cannon by left-wing independent producer David Puttnam. This bearded little Englander began a media campaign against Cannon which bordered on the antisemitic. Despite the fact that Golan and Globus were film makers like himself, Puttnam pictured Golan and Globus as hostile foreign invaders trying to take over the British film industry. Puttnam despised Cannon’s low-budget films. This said more about Puttnam’s British snobbery and its underlying antisemitism than it did about Cannon’s films.
Ominous words from Menahem Golan about the EMI contracts were not welcomed in Britain, even though 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.” A chill wind could be heard blowing down the elevator shaft on the fifth floor of Thorn House. We waited for the news of our company’s fate. I was not worried about my job as much as I feared for the future of the company, which was approaching its 60th anniversary year.
The Dartnall bid was now 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, Bond contacted Dartnall, “I hear you’re having troubles with Robert Maxwell. Why not dump him and take me instead.” Dartnall and Bond then flew by helicopter to look at Elstree Studios. The Australian was under the false impression that TESE owned Star Wars just because it was shot at the studio. A contract was signed between Alan Bond, Thorn EMI and the new management buyout company on December 8th 1985. The Australian company put up £10 million as a non-refundable deposit to be paid to Thorn EMI in order to secure more time to complete the buyout. Thorn EMI gave them a new deadline for the end of February 1986. Bond wanted to take a minority stake in the new venture. He trusted Michael Garstin of Bear Stearns, with his good track record, to be successful in raising the working capital for the new company.
The next day, Thorn EMI announced the £110 million management takeover of TESE in a press release. There was a huge sigh of relief in the British film industry. Gary Dartnall was confident of the future when he announced, “Now it’s business as usual.” What followed were four months of tension, 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 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 centred around his new satellite development deals with independent British film producers and relationships with tried and tested American producers. He thought that the company could be more successful without corporate interference from the Thorn EMI board, returning TESE to its roots as an independent film company. Dartnall wanted to bring back the old days of ABPC. After all, he started his career at Associated British Pathe in the late 1950’s. 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 such as Bob Webster from ABC cinemas and Andrew Mitchell at Elstree studios. Verity Lambert had already left the company to become one of his independent satellite producers. Originally a successful television producer, her three years at Thorn EMI Films had not been a great success. John Simenon was obsessed with Highlander and his Rollover Deals. His sales techniques did not exactly light the world on fire. Nick Payne, the chief financial officer, was solid enough, but his monthly financial books were mostly “smoke and mirrors”, according to Bond’s financial consultants. Payne realized that he had signed onto the wrong ship and later bailed out. Bernard Kelly, the director of financial control, worked seven days a week for four months to make the buyout happen but he had only been in the film business for four years. The only man in TESE who was a proper entrepreneur was the eighty year old Nat Cohen. 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 worse case scenario. He would either risk losing his £10 million deposit or buy the company outright. Bond 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 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.” This said more about the management controls of the Thorn EMI board than it said about Dartnall. Why had not John Sibley and his colleagues taken a closer look at the investment activities of TESE?
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 hair cut and came back to London the same day. Dartnall was not a financial man and his management team in London never understood the underlying risk of high budget film production. He was used to spending Thorn EMI’s money. Without the Thorn EMI credit line, he would be entering a completely different world. 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 rising to $4 million per film just for the US home video market.
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. Thorn EMI gave Dartnall another three weeks to complete his deal. 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 endeavors 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, 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.
The Cannon Group started in 1967 as a production company of low budget films and fell on hard financial times after a dozen years. Then it was purchased for US$500,000 by Israeli film director Menahem Golan and his cousin, producer Yoram Globus in 1979, both of whom had achieved success in the Israeli film industry. Golan had studied theatre at the Old Vic in London and film at Columbia University. After working in the Israeli theatre, he got his first experience in film making working as an apprentice to American International Pictures B-movie king Roger Corman. His film, Operation Thunderbolt, about the Israeli raid on Entebbe airport in Uganda, received an Academy Award nomination for Best Picture in 1978. Throughout the early 1980’s Cannon produced low budget action films, including the Death Wish sequels, although they did make an attempt to improve their company’s image by working with directors such as John Cassavetes and novelist film/director Norman Mailer. Most people, however, will remember Cannon for Chuck Norris and Charles Bronson movies.
Golan and Globus became masters of the art of pre-sales film financing, whereupon they would sell the foreign rights in a project based on a one-sheet poster sales campaign at the Cannes Film Festival. The pre-sales contracts would be taken to Frans Afman of Slavenberg Bank and Credit Lyonnais Bank in Holland, who also financed independent producers Dino de Laurentiis and Carolco. Cannon borrowed the money for production finance against the distributor guarantees, usually accompanied by letters of credit to the bank. In 1980, London-Cannon Films started producing films in Britain and this was followed by the establishment of Cannon Distributors UK. After purchasing the 130-screen Classic circuit in 1982 and later the small Star circuit, Cannon owned in excess of 200 British cinemas in 1985, thus becoming the third largest exhibition company in Britain after ABC and Odeon. As Cannon grew into a busy multinational film corporation, purchasing cinema circuits in Holland and Italy, they produced many films and delivered few hits and the company’s debts mounted. Their huge multipage adverts for future productions would fill the pages of Variety, some titles appearing year after year but never quite making it beyond the development stage. John Cassavettes’ Love Streams actually gave them a little prestige by winning the Berlin Film Festival’s Golden Bear Award. For anyone who wants to get some insight into the operations of the Cannon production organization, you need look no further than Charles Bukowski’s novel Hollywood, which is loosely based on the filming of Bukowski’s novel Barfly.
Upon meeting Golan and Globus in Los Angeles, Bond 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. 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, watching a new video which featured Screen Entertainment together with other Bond corporate holdings. Everyone was relieved to see the end of what had been four long months of tension and exhaustion following the celebratory TESE Christmas Party at the Rooftop Gardens in Kensington, when a triumphant Gary Dartnall had celebrated his ephemeral buyout victory.
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 each 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 fifty people, including fourteen lawyers and twenty-eight accountants. Cannon had arranged to display a massive photocopy of a 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. The value of their stock was beginning to fall.
For the remainder of the year Bond’s people went through much anxiety over Cannon’s ability to complete the deal. But this day belonged to Golan and Globus. They made a triumphant victory announcement to a shocked London film community. The two Israelis had at last won their battle to become the biggest players in the British film industry.
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 it’s 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 and Globus were unfairly 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 it’s 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 film division. He wanted to rationalize it, as any takeover company would have done. 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 would make a huge statement of intent to the Hollywood establishment that Cannon was a true force in the movie business.
The Daily Variety headline article in the Friday May 2nd edition was “Dartnall’s TESE Dreams Came With High Price.” Variety called Gary Dartnall’s period at TESE “a period of free reign management which led to one of the most remarkable spending sprees on product the British film industry has ever known.” But all Gary Dartnall did was to continue a Thorn EMI spending spree had begun in days of Barry Spikings and Can’t Stop The Music, with the full encouragement of the Thorn EMI board. The sudden and unexpected decision by Thorn EMI to offload the company caught Dartnall and everyone else by surprise, leaving the TESE with risky investments that would not help the prospects of the management buyout.
Therefore, the buyout was scuppered from the beginning. But dreams of independence drove Dartnall to give it a good run. In that sense, he was no different to Menahem Golan. Dreams of success with other people’s money are dreams that can end in nightmares when the money runs dry. Cannon, however, took the Dartnall strategy one step further and used debt to finance their gravy train. The summer of 1986 was a glorious summer for Cannon, after which the dominoes started to fall.
The first member of the Thorn EMI management team to receive the news of the Cannon takeover was Andrew Mitchell at Elstree studios, who then informed Bob Webster at Thorn House, where the marketing people were already at work in preparation for the following week’s Cannes Film Festival. As word spread throughout the TESE offices that Cannon had bought their company, John Simenon left the building and never came back. Many Thorn EMI employees felt dejected and depressed. They had climbed the EMI ladder to successful careers knew that it was only a matter of time before they received their pink slips. After a revenge meeting at the ABC headquarters in Golden Square, where Golan and Globus laid down 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 takeover from trade paper Screen International over the phone. All he could say was, “Fuck me, fuck 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. Golan and Globus 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 price 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.” The Simenon rollover deals were “completely without justification.” Golan was right. The deals were unfavorable, especially the rollovers. The Begelman deal was the worst and this was terminated by Cannon.
Menahem Golan made the most of his triumph over critics in the British film industry: “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 which 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. I don’t care. If I were to bring an investigation the police would have to be called and people would end up in prison.” Golan could have been talking about his own company. Cannon would be close to bankruptcy within ten months. Golan and Globus were no different to Gary Dartnall or any other Hollywood producers, including people such as Dino de Laurentiis or Jerry Weintraub. The film business was for dreamers. All these men started to dream too big and ended up falling down big time.
After purchasing TESE on May 2 1986, 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 across several countries and a massive film library numbering over 2,000 titles with the combined Cannon and EMI. However, the excessive price of £175 million that the Cannon Group paid for TESE, in addition the increased debts the company was taking on in America, undermined it’s 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 was going to topple unless more money was found. An ongoing SEC investigation into it’s finances undermined this prospect. As a result, the former Thorn EMI film company ended up being asset stripped and broken up while Cannon itself would become the victim of a takeover.
Cannon began sacking staff at TESE right away. They closed down the EMI Los Angeles office and pink-slipped marketing people headed for the Cannes Film Festival at the airport. Others were sacked in Cannes. One TESE executive was locked out of her office at Thorn House after receiving six months notice of termination and refusing to leave, asking instead for six months pay. Some TESE staff members began to back stab their colleagues, grassing them up to the new Cannon management. As the summer weeks progressed there were further redundancies. Cannon Managing Director Barry Jenkins would ask individual staff members to attend a very brief meeting in his office. Then he would notify them that they were being made redundant. Following which a member of Cannon management would escort them out of the building without giving them the opportunity to take documents from their office.
Many TESE staff members knew what was coming and passed computers and other equipment out of the ground floor windows of Thorn House. As the fall weather set in during October, the few EMI staffers who remained were rehoused into Cannon’s Wardour Street offices or moved into EMI’S old Golden Square building. After that, it was downhill all the way.
The Cannon logo sign was raised on all the ABC cinemas, by one man with a ladder, and this took months. The US video operation was now called HBO/Cannon Video. Cannon began to announce large $150 million deals on the Thorn EMI film library, booking contracts selling video and television rights that in fact EMI had already sold years before. The SEC took notice. Cannon’s share price tumbled. The first domino fell. Dozens of ABC theaters 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.
In 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 assumption. Cannon was now 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 came the following month after 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 sixty 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 ABC cinemas 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 to fall was the Cannon Group itself. On the verge of bankruptcy once again, Cannon found itself taken over by the French Pathe Communications company, which was controlled by an unusual Italian financier named Giancarlo Parretti. Menahem Golan left the company after ten years in charge. 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. At last Cannon had triumphed in America.
The man with the ladder in England began to change Cannon Cinemas signs once again, one by one, in order to replace them with the MGM logo. A year later, Parretti was removed from MGM after defaulting on payments to Credit Lyonnais Bank.
Weintraub eventually went bust too. The EMI film library was sold to a French company, Lumiere. It now belongs to Studio Canal.
This was the Golden Square/Soho/London HQ of Associated British Film Corporation, EMI Film and Theatre Corporation, Thorn EMI Films and Cannon Screen Entertainment 1930s-1980s