Carolco May Be Headed For A Quick Dissolve

No one has more Hollywood style than Mario F. Kassar. When the 40-year-old Carolco Pictures Inc. chairman cruised into last year's Cannes Film Festival on a rented 203-foot yacht, he drew as much attention as the film he came to promote--a little number called Terminator 2. But when Hollywood hit the Riviera this year, the good ship Kassar had been dry-docked. "I have no reason to party," he told reporters as he strolled with Basic Instinct stars Michael Douglas and Sharon Stone.

Give Kassar credit for knowing when the music has stopped. Things have been tough all year for the producer whose extravagance--he shelled out $16 million to Sylvester Stallone for Rambo III and gave Terminator 2 star Arnold Schwarzenegger his own airplane--could make the rest of Tinseltown look like pikers. Burdened by a mountain of debt and restive bankers, Kassar's Los Angeles film-production company, which posted some $601 million in 1991 revenues, has lost $269 million over the past 15 months. Its management is in flux. And on June 12, it said it had hired New York investment-banking firm Allen & Co. to manage a massive restructuring.

BIG SPENDER. How Carolco got in such straits is a story of excessive spending, lavish lifestyles, and a pair of executives who couldn't work together. The company still knows how to make hit films: Terminator 2 has generated nearly $500 million in ticket sales, and Basic Instinct has pulled in some $107 million. But it knows even better how to spend big money: Instinct's budget was $47 million. Terminator cost $90 million.

To guard its investments, Carolco frequently told investors, it collected enough advances from video and foreign rights to cover the huge costs of making the movies. But there wasn't always enough left over to cover overhead, interest, cost overruns, and the percentages paid to stars.

The result of Carolco's largess? "A disaster waiting to happen," says S. G. Warburg & Co. Vice-President Lisbeth E. Barron. By last spring, Carolco's bankers agreed--and began slashing the company's lines of credit. The recession compounded Carolco's woes, causing losses in its television syndication and home-video businesses.

The downturn in Carolco's fortunes came just as the fighting between Kassar and Carolco President Peter M. Hoffman picked up. Hoffman, a former tax lawyer, wanted to hold the line on costs. Kassar wanted to spend big bucks on revenue-generating movies. In one now-infamous face-off, Kassar agreed in early 1991 to give director Oliver Stone $2.5 million above the original $40 million budget for The Doors, even after Hoffman had rejected the request. "There were armed camps on both sides," recalls L.A. Story producer Daniel Melnick, who resigned from the Carolco board in April, 1991.

The flow of red ink sent Hoffman looking for fresh equity in early 1991. He lined up three of Carolco's major foreign distributors: French cable company Canal Plus, Japanese electronics company Pioneer, and Dutch video distributor RCS Video International. They forked over $130 million in exchange for a 40% stake.

Kassar, whose ownership fell from 54% to 35%, called the three "strategic partners." But he viewed the equity-raising as a ploy to oust him. Hoffman, who isn't talking, ended up leaving. He left in March with a $1.8 million settlement. At about the same time, Carolco's three partners agreed to provide an additional $73.8 million in equity, loans, and guarantees, in return for all of Carolco's stock in a video unit and the right to increase their Carolco stake to 75%.

SWALLOW HARD. Now in control of seven of Carolco's 13 board seats and a majority of the company's five-person executive committee, the three companies installed former Bankers Trust Co. Managing Director William A. Shpall as Carolco's top strategic planner. Then they hired Allen.

Kassar, who won't comment, isn't out of the picture. Hungry for hits, the investors have signed him to a three-year contract. He'll average $1.7 million annually, plus part of the action on his films.

To save Carolco, Mario Kassar's new bosses will have to swallow a lot of debt. By November, $126 million in bank lines come due. To raise cash, they're selling assets, but that has proved difficult: A deal to raise $64 million by selling TV rights to Carolco's film library recently fell apart.

With so much money already sunk into Carolco, its new owners will probably ante up. Kassar certainly doesn't seem worried. The filmmaker in April began production on his latest Stallone adventure film, even though he hadn't raised half of the $60 million he needed. The money came through even as the crew was heading for Europe. The name of the picture? Cliffhanger.

      Carolco Pictures' biggest-budget flicks*
      Movie                Budget         Worldwide         Carolco's net
                                         ticket sales      revenues
      RAMBO III            $55            $189               $80
      TOTAL RECALL          60             262                80
      TERMINATOR 2          90             490               120
      *Millions of dollars          DATA: CAROLCO PICTURES, BW
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