Drabinsky Faces Hostile Crowd at Cineplex Meeting

TORONTO —  The embattled chairman of Cineplex Odeon Corp. faced hostile questioning Friday at a twice-postponed shareholder meeting but gave no hint of his progress in raising money to take the company private.

Nearly 450 people attended the tense, 45-minute session, despite the fact that many Canadians were already leaving the city for a long holiday weekend. The turnout was testament to the stormy nature of Cineplex’s growth over 10 years, and now, its possible demise.

Cineplex, the second-largest movie theater concern in North America, was placed on the auction block in last month by its board after Garth H. Drabinsky tried and failed to seize control in April.

In a terse report, Cineplex director James D. Raymond told shareholders that a special committee of the board has retained investment bankers to conduct a two-stage auction and indicated that materials were being readied for review by potential buyers. After an initial screening, some parties will be asked to submit binding offers, Raymond said.

In financial circles, Drabinsky is said to be trying to raise money for a buyout offer, but the Cineplex chairman warned shareholders at the meeting’s outset that he would not be able to discuss the situation or the state of recent shareholder lawsuits.

Drabinsky--who owns about 3% of Cineplex’s shares--was foiled in his attempt to buy a controlling block of stock from the Charles R. Bronfman family after protests were lodged that the deal was unfair to remaining shareholders.

The company’s largest shareholder, MCA of Los Angeles, complained to Canadian regulators and threatened court action until the plan was abandoned by Drabinsky and the Bronfmans.

Heated Questions

In the melee, MCA publicly criticized Cineplex’s financial reporting practices and unspecified management procedures. MCA has been silent on the subject since winning its campaign to form a special committee to put the company up for sale, but the topic of Cineplex’s accounting was hotly--if futilely--pursued at the shareholder meeting.

Some shareholders were denied permission to speak until Drabinsky was persuaded that they indeed held proxies. Nor were microphones provided, but a few professional traders and analysts pressed ahead nonetheless with their questions about seeming inconsistencies in Cineplex financial statements.

Alex Winch, an analyst with Sprott Securities of Toronto, inquired about varying sums reported for the sale of a 49% stake in a Cineplex subsidiary called Film House. Although Cineplex’s annual report said the company received $73.5 million (U.S.) from the sale, Winch noted that a lower sum was reported in other filings at the Securities and Exchange Commission.

The analyst also noted an $85-million discrepancy in Cineplex’s recording of its 1987 net operating loss carryforwards in the past two annual reports.

Drabinsky refused to address the specific points but insisted that “all the financial statements have been prepared in accordance with generally accepted accounting principles.”

Winch and another analyst, Pierre Panet-Raymond of McDermid St. Lawrence Ltd., questioned Cineplex’s role in film production. Drabinsky insisted that the company has always limited its involvement to the acquisition of certain distribution rights but Panet-Raymond challenged him by reading from a partnership agreement Cineplex signed 16 months ago in which Cineplex pledged $25 million to form “a business of financing, producing and distributing motion pictures” with New Century Entertainment Corp. of Los Angeles.

Tape Recorders Banned

The tenor of the session was in stark contrast to the festive mood 13 months ago, when Drabinsky allowed television crews into the auditorium and showed color slides of a 50%-owned Florida theme park under construction with MCA.

All electronic equipment--including tape recorders--was banned from Friday’s meeting, and the curtains remained drawn over the screen. Cineplex sold its stake in the Florida theme park shortly before Drabinsky made his attempted end-run around MCA, which still owns 49% of the company’s equity and was represented full force at Friday’s meeting.

No introductions were made, but MCA President Sidney J. Sheinberg, Chief Financial Officer Harold Haas and Vice President Charles S. Paul sat silently watching the session from fifth-row seats.

Since mid-May, MCA’s Paul has, along with Drabinsky and Raymond, been a member of the newly created office of the chairman, which represents the Bronfmans’ interests.

After the meeting, Panet-Raymond said the testy session appeared to be “Garth’s swan song.” The analyst stood in a bath of television camera floodlights; in past years, Drabinsky would have hosted the impromptu press conference for the lively Toronto press corps.

“It was the most bizarre annual meeting I’ve ever gone to,” Panet-Raymond said. “I’ve never seen circumstances made so difficult for shareholders to ask questions.”