Wasserman Holds the Cards in Any Potential MCA Deal

Deep into merger discussions with RCA Corp. five years ago, MCA Inc. Chairman Lew R. Wasserman suddenly turned to his company’s president, Sidney J. Sheinberg, and said: “You know, you’re not going to be happy with this.”

The talks quickly died.

That incident may carry a lesson for those monitoring MCA’s current negotiations with Japan’s giant Matsushita Electric Industrial Co.: Where Wasserman is concerned, it is a mistake to ignore the human factor.

Individuals close to the 77-year-old entertainment executive say he appears to favor a deal under which Matsushita might acquire MCA for as much as $90 a share, or $7.5 billion.

But close observers of Wasserman also describe him as a person with deep emotional ties to his company, who doesn’t like being pushed and isn’t afraid to buck pressure from a profit-hungry stock market if he doesn’t like the terms of a deal.

“He’s going to do what’s right,” one associate said.

MCA stock shot up $7.25 a share Wednesday on reports that Wasserman and Sheinberg were headed for New York to speak with Matsushita officials. But the stock fell $2.25 to $59 Thursday, when scheduling problems forced a delay in the talks.

MCA officers are now set to meet the Japanese late next week. Thus far, their only contacts regarding the possible acquisition appear to have been conducted through Creative Artists Agency Chairman Michael Ovitz, who is advising Matsushita.

Separately, MCA appears to have established at least a secondhand business link with the Osaka-based consumer electronics giant. Recently, according to several company sources, MCA’s record company agreed with Matsushita’s 50%-owned Victor Co. of Japan, known as JVC, to form a jointly owned record company in Japan.

An MCA Records spokeswoman Thursday declined to comment on the agreement. Sheinberg declined to comment on the record deal or on the merger talks.

Agreements under which MCA and its Geffen Records unit have distributed internationally through Time Warner’s record division are set to expire next year. JVC already distributes MCA video products in Japan through an alliance with United Independent Pictures, a joint venture that includes MCA’s Universal Pictures.

Regarding the Matsushita acquisition, Wasserman has been characteristically tight-lipped. Reminded by an inquiring reporter that nervous investors were anxious for some hint of progress in the talks, he said only: “Me, too.”

Some Wasserman associates say the executive was deeply angered that word of the discussions were leaked to the Wall Street Journal earlier this week, in what some have seen as an attempt to force his hand. “MCA is pissed,” one person said bluntly. Another individual said the early report had hurt the company’s attempt to “position” itself in Washington, where some lawmakers have already expressed distaste for another big Japanese acquisition.

Wasserman is said to see the advantages of an acquisition by Matsushita, which would provide access to vast financial resources and end persistent market pressure for a sale. Eventually, the deal might also ease the disposition of his estate and of his voting control of shares held in the estate of MCA’s founder, the late Jules Stein.

But Wasserman’s age hardly makes a sale, or even his retirement, inevitable. At nearby Occidental Petroleum Corp., Armand Hammer continues to preside as chairman even though he is 15 years Wasserman’s senior at age 92.

MCA isn’t in financial need, even if profits have been somewhat flat, and Wasserman historically has expressed reservations about foreign buyers. “I have been with Lew and heard him say he would never sell to a foreign company,” one longtime MCA executive said Thursday.

As a 50-year MCA veteran, moreover, Wasserman is deeply loyal to those who are loyal to him--and he has been especially careful in the past to protect Sheinberg, his protege and the company’s operating chief.

When Wasserman was hospitalized for the removal of polyps from his colon in 1987, he publicly declared support for Sheinberg and pointed out that the president, through estate arrangements, would inherit control of the chairman’s 5.2 million MCA shares. (In all, Wasserman controls about 13.4% of MCA’s stock personally or through the Stein trusts.)

Only weeks ago, according to two sources who claimed to be familiar with the situation, MCA officers shied away from merger talks with Paramount Communications because of control issues. Even though Matsushita is supposedly willing to preserve MCA’s management structure for years, control could become a sore point in the talks, given widespread reports that Ovitz ultimately envisions a role for himself at MCA.

The single new factor that militates toward a sale may be the presence, since earlier this year, of record mogul David Geffen as a major shareholder, with preferred stock that translates into a 12% stake in MCA.

Geffen sold his record label to MCA last summer for 1 million preferred shares that can be converted to 10 million common shares--but only in stages over several years and only if he sells them, under an agreement with MCA.

The arrangement gives Geffen little direct power at the company. But he could become a powerful ally against unwanted takeover bids, simply by agreeing with MCA to rip up the contract restricting his shares.

Geffen might have good reason to back a deal. In recent months, the record mogul saw his company shares, originally valued at $545 million, dwindle to just $350 million on paper as entertainment stocks collapsed.

Geffen said only that he will back any decision by Wasserman. In his words: “I completely support any decision by Sid and Lew. They know what’s best for the company.”