Ron Perelman's acquisition of Technicolor, Inc. (1982)
Good Deal, Bad Deal

Perelman discovered a company loaded with unprofitable assets that could be sold, leaving the core of profitable company that Perelman acquired at almost no cost.

What Went Right: In Technicolor, Ronald Perelman discovered a company loaded with unprofitable assets that could be sold, leaving the core of profitable company that Perelman acquired at almost no cost. When the main assets of Technicolor appreciated in value, Perelman cashed out for a huge gain. Although Perelman did not invent the buy-to-sell acquisition it was rate in 1982 for someone to buy a company with little equity and act so aggressively to maximize the value through a series of asset sales.

Ronald Perelman and his acquisition company, MacAndrews & Forbes, have been involved in many notable deals in the last 20 years; his outfoxing the government in negotiations for the purchase of five S&Ls in 1988 is among them. For a return on assets, however, his biggest victory was the acquisition in 1982, and sale, in 1988, of Technicolor.

Technicolor is in the film-processing business. Though it is best known for processing film for movie studios, it had numerous other commercial and consumer operations, including a string of One-Hour Photo shops.

In 1982, Perelman, who had made several successful smaller acquisitions, purchased Technicolor for $120 million. He used 42 million of MacAndrews and Forbes' money and borrowed the rest. (At the time of the deal MacAndrews & Forbes was a public company' Perelman took it private - that is, he bought the publicly held stock so that it no longer traded on a public stock exchange or had shareholders other than Perelman or partners he brought in - four months after the deal's completion.)

Perelman courted Technicolor's CEO, his advisor, and several board members in a manner that was aggressive and challenged in courts as illegal. According to deposition testimony, Perelman had implied separately to both the CEO and his rival on the board that each would run the company post-acquisition.

The CEO's advisor was also promised a place in Perelman's budding empire. Several other board members were informed of the deal, presented as a fait accompli, only hours before they were asked to approve it, which they did. Perelman paid $120 million for 81 percent of the shares ($23 per share) in November 1982, and the same price for the remainder in a second-step merger in January 1983.

Although these facts were disputed and came to light in the years of legal wrangling after the deal, to most observers, Perelman did not have to go to the trouble. In the year before Perelman bought Technicolor, it earned just $3.4 million on sales of $229 million. One-Hour was an expensive money loser.

Perelman knew better. The on-hour photo labs were closed. Some businesses and excess real estate were sold for more than $50 million. Perelman focused on the commercial film-development business, and Technicolor thrived, even making some acquisitions during the mid-1980s.

In September 1988, Carlton Communications, a British firm in the business of supplying television services, agreed to pay $780 million for Technicolor. MacAndrews & Forbes (now wholly owned by Perelman) owned 100 percent of Technicolor. Having purchased Technicolor six years earlier with only $2 million in equity, Perelman made nearly $780 million.

As Perelman was well aware, gains this big do not come without legal challenges. One of Technicolor's minority shareholders, 4.5 owner Cinerama, Inc., challenged the deal and the price in two separate Delaware actions in 1982 and 1986. Despite numerous rulings and reversals, the deal finally passed the court's muster in 1995, nearly 12 years after it was concluded and seven years after Perelman sold the company.

Cinerama's appraisal action, seeking a fair price for its shares, was still pending at the end of 1999. It took a good part of the late 1990s to determine whether the fair value of the shares should be determined as of November 1982, when Perelman took control, of January 1983, when he completed the second step of the merger. The action has the dubious distinction as the longest corporate action ever pending in the Delaware courts.

Michael Craig

4/11/07

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