Exploiting Hollywood 1980.

Chapter 1524: Using External Brains for Investigation

There is no doubt that Crédit Lyonnais's series of investments in Hollywood have all ended in failure.

This old French bank has been the most powerful state-owned financial giant in Europe since it was nationalized by the French government along with two other banks in the 1940s.

In the mid-1980s, he also acquired the Rotterdam Slapenburg Bank, the first European bank to expand overseas business in America, making it the European bank with the largest business in America at that time.

This was a very unusual thing during the Cold War, when cross-border acquisitions and businesses were not as developed as they are today.

The business of Rotterdam Slapenborg Bank was actually not unusual. At that time, there were only three types of clients who needed such large-scale financial services across Europe and the United States: those who sold illegal drugs, American gangs laundering money, and Hollywood moviemakers.

Of course, these three types of clients are often entangled with each other. To put it bluntly, they provide a kind of underground finance that helps New York, Chicago and other big cities to re-enter America by investing in art films that do not care about box office returns, and transform themselves into legal income.

The Dutchman Frans Afman has been working on this Hollywood connection work at Danslavenburg Bank in Rotterdam and the merged Credit Lyonnais.

He is the financial backer behind many famous Hollywood directors and producers. He has served as the producer of Oliver Stone's film projects many times. He also provides bridge loans and direct investments as a core investor to medium-sized studios such as Carloco, Castle Rock, and even Weintraub Pictures.

However, Credit Lyonnais' biggest adventure in Hollywood had nothing to do with Frans Afman. A few years ago, they directly provided hundreds of millions of dollars in credit to the Italian financial fraudster Giancarlo Parretti to acquire Cannon Pictures and merge MGM Pictures from casino tycoon Kerkorian.

What happened next is something everyone knows. This financial fraudster Giancarlo Paretti not only appointed his 21-year-old daughter as the company's top financial executive, but also made MGM-Cannon's main business by making empty promises to many beautiful women in the industry, turning the company into a platform for him to pick up girls.

Afterwards, his clumsy scam was exposed, and MGM was turned into a shell. The production and distribution business came to a halt. He was arrested by the FBI and was about to be sued. Credit Lyonnais had to take over MGM-Cannon Pictures to prevent MGM from going bankrupt instantly and causing the bank to suffer huge asset write-downs.

Credit Lyonnais, a financial company, took over MGM Pictures, a Hollywood studio, but it had no talent and no projects. It held out for two years. For some reason, it suddenly felt that Ronald's DDH was a potential good buyer, so it asked people to find a chance for negotiation.

"They may have discovered from your and Tom Cruise's joint counterattack that you are the right person to take over their business..."

Michel Cannold, who was in charge of distribution, knew that MGM was the domestic distributor of the movie in which Quentin made a cameo appearance. These foreigners, outsiders to Hollywood, seemed to think from Ronald's counterattack that he would be interested in buying MGM.

"This bank is very rich. The recent big project of Carloco, the pirate movie 'Cutthroat Island', was financed by Credit Lyonnais as a bridge loan. They are a state-owned bank of the country, so they don't blink an eye when investing. They just lack good profitable projects. Did they calculate Ronald's investment resume and offer MGM to him?"

David Simkins, who was responsible for the script, hoped that there would be a sponsor with such a big wallet to invest with his eyes closed.

"What do you think?" Ronald asked CEO Ed Bastian when he saw that he didn't say anything.

"I think we should be cautious about this matter. They took the initiative to come to us and put forward very good acquisition conditions. This matter seems too good to be true." Bastian flipped through the acquisition invitation that the other party had tentatively put forward. In addition to MGM and all the assets of the acquired Cannon Pictures, plus the historical film library, there are also studios and factories in Hollywood, as well as the land ownership of the location, and their TV production company...

All of these large-scale assets were only priced at US$1.5 billion. Compared to the nearly US$9 billion that Viacom paid for Paramount, and the prices that Sony and Panasonic paid for Columbia and Universal respectively, this price is a bargain no matter how you look at it.

As a listed company, DDH Media can acquire MGM through additional issuance, stock exchange, and some cash.

Moreover, the proposal conveyed by Credit Lyonnais also came with a plan that, through some bonds and the restructuring and transfer within the banking system, they could resolve MGM's current debts in a package and would never let the buyer fall into a high-debt crisis like Viacom.

This is what Bastian said, the asking price was too good to be true. If that were true, why didn't anyone from Hollywood or Wall Street bid for it? Columbia's highly leveraged buyout had already triggered bids from two bigwigs.

"But there are also good aspects to this acquisition... There are some valuable things that will not be written on the balance sheet."

Some executives who are not responsible for money do not understand valuation and asking prices, but they are insiders and know some of the important assets under MGM Cannon Group.

For example, all the film libraries of MGM from its inception to today, after the boom of the video tape market and the TV on demand market, can generate much more cash flow than before, and the current valuation is adjusted upward.

For example, MGM is a board member of the MPAA and has a great influence on CARA, the committee responsible for film ratings.

Generally speaking, the films of several companies that are members of the board, including Disney, MGM, Universal, Sony Columbia, Warner Bros., 20th Century Fox, and Paramount, can get better ratings under the same standards.

Films produced by independent production companies are more likely to be rated R due to foul language, nudity, violence, etc., while films produced by these seven companies are more likely to be rated PG-13.

These are also the two ratings that have the greatest impact on box office in the American television market. With the same scenes of violence and handsome men and beautiful women, the box office revenue of the two ratings can differ by as much as 50% or even 100%.

Unless the films produced by Daydream Pictures are produced in cooperation with the seven major studios or distributed by them, they will also be subject to the strict requirements of the ratings committee.

We cannot directly blame the seven major studios, because this differential treatment is achieved in a very subtle way.

The film ratings committee CARA actually employs independent people as raters. After multiple people watch the copies of the films submitted for review, they independently give scores based on the comprehensive assessment.

The process is very secretive, and the work of the nine junior raters, part-time or full-time, is kept secret. Their families only know that they work for the MPAA, and that one person cannot work for more than five years.

Their comments on the film are also sent to a senior assessor through a handwritten evaluation questionnaire. These opinions are summarized by the senior assessor and then archived in the MPAA's large warehouse.

The senior evaluator then verbally conveys the opinions to the director and producer of the film. From the beginning to the end, the director and producer cannot see the first-hand opinions of the nine evaluators who have actually watched the film. They are all conveyed through the senior evaluator.

The best part is that these reviewers are anonymous, and the seven major studios don't know who reviews their films, so it's hard to find evidence that the seven major studios are favored from an institutional perspective.

However, entry-level evaluators only make $30,000 a year and have no career path. The MPAA also decides who to recruit. Senior evaluators, who earn more and have the potential to take positions at other studios, are also appointed by the president, who is elected by the MPAA's board of directors.

Therefore, through some kind of roundabout effect, the seven major studios were able to get priority in the ratings, and the evaluators who did not do so would face dismissal and not be assigned important work. After all, the applicants who want to see the big productions first are waiting in line for a long time, and watching those boring independent films is the job that evaluators hate the most.

The list of the board of directors has also undergone many changes. It mainly depends on who in the industry can reach a certain proportion of annual investment in the industry. If you are an important player, then after a period of time, you will be invited to join the board of directors.

For example, RKO, a founding member, was disqualified because it withdrew from mainstream production. United Artists, which was acquired by MGM, was also an important member of the board of directors and the only film studio controlled by artists with a board seat.

United Artists still holds this seat, but their voting rights have been delegated to MGM, because United Artists is only occasionally used for film production and distribution, and rarely exercises voting rights as an independent company. It is estimated that after a while, when the next MPAA reorganization takes place, United Artists will completely withdraw and lose all its privileges in the MPAA.

Ronald was also hesitant. These tickets were hard to get. Even a newly established company like DreamWorks, even if they invested a large budget to shoot big commercial films every year, did not have a seat on the board of directors for the time being and could only express their opinions at the conference as an ordinary member.

Moreover, these privileges cannot be bought with money. They also depend on chance, such as the acquisition of old players or major reorganization and redivision of power structure.

Ronald felt that this was a rare opportunity, but at the same time, he felt that Bastian's concerns were reasonable. If his ten years in Hollywood had taught him anything, it was that if a deal seemed to meet your needs, then it must be a scam specially designed by someone else to deceive you.

"By the way, how much did Credit Lyonnais lose in this mess of MGM?" Ronald came up with an idea. Since it was impossible to determine whether the other party's intentions were malicious, I could start with those quantifiable aspects, such as why they were in a hurry to sell MGM now?
"It's hard to measure. We don't have the talent and information base of Goldman Sachs and JPMorgan Chase. An independent investigation may not yield accurate results." Ed Bastian came from Pricewaterhouse. Even if his old employer came, it might not be able to come up with a correct assessment...

After all, Credit Lyonnais is a state-owned enterprise, and in many cases it exists as a tool for the British government to project its influence overseas. Sometimes its behavior cannot be measured by purely commercial thinking.

"Are there any new developments in the country's politics recently?" Ronald suddenly asked.

"Yes, their Paris mayor, Mr. Jacques Chirac, has announced that he will run for president next year." Some of Ronald's colleagues are familiar with the political situation in the country.

"It turned out to be Jacques. He really likes my movies and even spoke well of them back then."

Ronald smiled. It turned out that this mayor, who was a huge movie fan, loved American comedies (such as The Great Escape) but was not averse to Hollywood movies. He even said that he liked his own Dirty Dancing.

"Oh, hahaha, it's the love from a politician. Is there a high possibility that he will come to power next year?" Some people began to imagine it impatiently.

"Hahahaha..." Everyone started to flatter Ronald. It turned out that this was care and concern from the next president.

"This is quite interesting. Ed and I will continue to discuss this with the bankers on Wall Street. We will adjourn the meeting today."

After disbanding the meeting, Ronald retained Ed Bastien.

"Ronald, would you like to reconsider this?" Seeing how much Ronald enjoyed having such a big shot as his fan, he didn't want to object directly.

"Why? Opportunities are fleeting..." Ronald waved his hand, saying that if this is really a good opportunity, we will regret it if we miss it. "Since our own talents and knowledge are not enough to complete the background check, why not borrow the brains of the top investment banks on Wall Street? We can hire them to assist in the acquisition, and they will naturally mobilize their global resource pool and talents to complete the investigation of the real situation for us.

In particular, how much money did Credit Lyonnais lose on MGM..."

"Hahaha..." Ed Bastian was relieved. The boss was still very cautious and smart.

"I will contact Mr. Paulson of Goldman Sachs. He has been selected as the new president and COO. The IPO of DDH Media was an important contribution to his rise to the top. This is a good opportunity for him to repay the favor."

"Repay a favor? No, no, no, you're wrong. We did him another favor, allowing him to make money easily and have the opportunity to operate a cross-border merger and acquisition. He owes us another favor."

“Hehehe, the two of them laughed knowingly.”

"Thank you DDH for your trust in us Goldman Sachs..."

After Paulson was promoted, his spirits became even more high-spirited. Although he said words of gratitude, the subtext revealed by his expression was that we are the best on Wall Street and you were smart to choose us.

“Of course, I can’t imagine another company coming to help us with M&A…”