Mergers, Acquisitions and Global Empires by Unoki Ko;

Author:Unoki, Ko; [Unoki, Ko]
Language: eng
Format: epub
Publisher: Taylor & Francis Group
Published: 2022-08-15T00:00:00+00:00

Rumblings of discontent

In December of 1991, MEI rejected a proposal from Sheinberg to bid for the record company Virgin Records (Virgin), best known as the label of the British rock group the Rolling Stones, for US$600 million. Going after Virgin was in Sheinberg’s view a means to further expand MCA’s music business, which had already acquired the recording companies ABC, Infinity, Motown, and Geffen Records.136 Sheinberg and his executives had been preparing for several months for this acquisition, and its rejection by MEI was a disappointing blow to the MCA executives. David Geffen, who was head of Geffen Records and had sold his record company to MCA before the acquisition by MEI, commented bitterly that “If Matsushita is not helping us become bigger and better, then likely I’m not going to continue because I am interested only in winning.”137

For MCA executives, using M&A to grow within the entertainment business was nothing new. Geffen Records for example, contributed around US$40 million in operating profits in 1991, more than any other division within MCA.138 Aside from the potential added revenue, the acquisition of Virgin was also viewed as an opportunity for MCA to strengthen its overseas distribution of music and further expand its global presence and sales, which had increased over 20 percent since 1965. Al Teller, who was the chairman of MCA Music, the music recording division of MCA, said, “What made the deal strategically important was that it provided an overseas operation from which we could build a comprehensive global presence.”139 From an industry standpoint, what MCA was proposing to do was nothing out of the ordinary, as many movie, TV, publishing, and music businesses were undergoing consolidation. For industries such as movies and music, which were at the mercy of a public that was increasingly fickle in its tastes and which were also expanding globally at a rapid rate, M&A was a means to further gain global market share and to spread the risks from hits and misses in movies and music.

The proposal to acquire Virgin was not an idea that arose at the spur of the moment or the result of an instantaneous flicker of inspiration. MCA’s management had made intensive studies before putting together their proposal and had contacted Felix Rohatyn of Lazard Freres (who was also an MCA board member) alerting them of their interest. A high-level meeting suggesting the seriousness of intent of both MCA and Virgin was held in September 1991 in Los Angeles. Richard Branson, chairman of Virgin Records, and Ken Berry, president, both flew in from London to attend the meeting. On the MCA side, Wasserman, Sheinberg, Geffen, Teller, and Lazard’s Ken Jacobs participated.140 Interestingly, no one from MEI was in attendance. In addition to this top-level meeting, in what would correspond to a preliminary act of due diligence, MCA had also sent a dozen executives to London to examine the financial books of Virgin and to interview Branson. MCA also hired a law firm to draw up a purchase agreement.141

All the

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