British-owned Rank Group is close to selling its Deluxe Film Services unit to a company headed by multibillionaire Ronald Perelman. The pending purchase would significantly add to Perelman’s Hollywood holdings, the most prominent of which is now Panavision.The acquisition, if completed, would put EFilm, one of the town’s premiere players in the burgeoning business of creating digital intermediates, back under the Perelman umbrella. Panavision sold its 80-percent stake in EFilm Digital Services to Deluxe in early 2004 for an undisclosed price.Besides Perelman, other potential buyers that have lined up for Deluxe—which, together with Thomson’s Technicolor, pretty much controls the business of film lab processing for the major studios, along with the striking and shipping of prints to screens around the globe—are said to include Modern VideoFilm, and Ascent Media as well as some Wall Street private equity firms.Perelman “has been the most aggressive bidder,” one well-placed source told Below the Line. Another added that “it’s all but a done deal.” The purchase price is estimated at around $800 million. Neither Perelman’s company nor England’s Rank Group would, as a matter of policy, comment on the state of the negotiations. The offloading of Deluxe, which has been on the auction block for over six months, will mean a final exit by Rank from its once proud and historic position in film production, leaving it entirely in its chosen field of resorts and gaming.There are several reasons why Perelman, a dealmaker renowned for extracting value from his assets (he’s worth $6 billion, according to Forbes magazine), might be interested in buying Deluxe at this point.One is that, having owned it until recently, he knows the potential of EFilm, which is extremely well-positioned as a provider of state-of-the-art digital services. If Perelman does put his signature on the dotted line, as now seems quite likely, he will have some of the town’s most highly regarded manager-executives working for him: Panavision CEO Robert Bietcher, Cyril Drabinsky, president of Deluxe Film Labs, and Joe Matza, president/CEO of EFilm.Before Bietcher became head of Panavision in 2003, he was at Technicolor, so he’s intimately familiar with the operations of Deluxe’s main competitor. In the digital realm, Technicolor—with current French parent-owner Thomson providing ample financial resources—is a cutting-edge provider of services. Foremost is Technicolor’s digital intermediate facilities, which compete head-to-head with EFilm.Somewhat ironically, Perelman actually owned Technicolor in the early 1980s, and its sale a few years later amounted to his first great financial coup. He netted an estimated $625 million bonanza on his own $2 million investment, though it took 23 years of suits and judicial rulings, including one by the Supreme Court, to validate the legitimacy of the sale. (A ruling only a few months ago finally capped the acrimonious but, for Perelman, highly lucrative transaction). The quick buy-sale turnaround was the launching pad for Perelman’s later dealmaking, which included the acquisition of a controlling interest in cosmetics colossus Revlon and Marvel Entertainment, among numerous other entities.Meanwhile, Deluxe’s traditional film labs and printing-shipping business suddenly looks to have more long-term profit potential than recent naysayers have been claiming. Despite years of predictions that the digital delivery of films was a sword about to drop on the print labs, reaching that goal has been slow as molasses.Another setback to digital projection was dealt by Disney president Robert Iger’s recent posing of the possibility that his company could start to release its films on DVD at the same time they hit the theaters. This stunned the cineplex community and damaged the campaign by the studios to convince theater operators that it’s in their interest to make heavy investments in new digital projection systems that some believe may soon become outdated. So even though digital delivery and projection still seems inevitable, the transition won’t happen overnight, and the twin technologies of film and video projection may wind up coexisting for perhaps decades.Deluxe, while perfectly positioned for that digital future with its ownership of EFilm, should still be cranking out considerable coin from its bread-and-butter businesses for a long time to come, which is maybe what perked Perelman’s interest.
Written by Jack Egan