Entertainment Rights, the debt-laden company behind Basil Brush and Postman
Pat, is trying to raise about £30 million from shareholders in an attempt to
continue in business.
The company disclosed yesterday that it was in tentative takeover talks, but
its position is so weak that there is little expectation that an attractive
offer will be made for a business whose shares are down 97 per cent this
year.
Instead, Entertainment Rights believes that its best hope to cut its £130
million debt is through a rescue placing in which existing shareholders, led
by Trevor Hemmings, the leisure entrepreneur, will be wiped out if they do
not stump up cash of their own.
Some of its smaller properties may be put up for sale, but in the present
environment, a fire sale of its big brands, which also includes Rupert Bear,
is not planned — not least because it may not generate enough to eliminate
the debt.
A shareholder-led rescue will likely depend on the attitude of Mr Hemmings,
whose Ashby Manor vehicle owns 17 per cent of the company and whose son
Craig is a board member. With a fortune estimated at £1 billion, he would
not necessarily find it difficult to support a refinancing, although no
formal proposal for him to study is thought to have emerged.
Entertainment Rights' debts sit with a syndicate led by HBOS. In December the
bank agreed to provide an extra £13 million to “cover potential cashflow
shortfalls” during the Christmas period. The financial breathing space lasts
until February 28, by which time Entertainment Rights, which is advised by
Close Brothers, hopes to have agreed a rescue.
Its problems stem from over-ambition, after it competed with HIT Entertainment
and Chorion to build a broad portfolio of characters in an attempt to create
a miniature Disney. It was intended that the range of brands on offer would
reduce risks. Two years ago, Entertainment Rights paid £107 million to
acquire Classic Media, of the United States, with £87 million of the
purchase price due in cash.
Classic Media owned Lassie, the Lone Ranger and Casper the Friendly Ghost. At
the time of the deal, Mike Heap, then Entertainment Rights' chief executive,
boasted of “a meeting between Lassie and Jess [Postman Pat's cat] in the
pipeline”.
However, in its last interim results, covering the eight months to August 31,
Entertainment Rights was forced to make £83 million in write-offs in the
wake of the Classic Media acquisition, leading to an overall loss of £100.4
million on sales that totalled £20.3 million.
Mr Heap, who led the Classic purchase, left the company in March and was
replaced by Nick Phillips, the former boss of Warner Music UK. However, Mr
Phillips did not last and left at the start of this month. A candidate with
direct experience in the children's market was sought to take over from him
and Deborah Dugan, a former Disney executive who had run Entertainment
Rights' North American operations, was promoted to chief executive.
A third of the company's 150 employees are being made redundant in an effort
to save costs. The collapse of Woolworths could cost Entertainment Rights
another £500,000 because the failed retailer and Entertainment UK, its
distribution unit, took stock that had not yet been paid for when Woolworths
went under.
