In an effort to shore up its financial status, publicly traded, Minneapolis-headquartered iNTELEFILM is considering selling its commercial production house subsidiaries: bicoastal/international Chelsea Pictures and New York-headquartered Curious Pictures.
INTELEFILM has hired investment banking firm Mosaic Capital to investigate possible deals involving Chelsea and Curious. This development follows iNTELEFILM’s recent closure of bicoastal/international spot production shop The End (SHOOT, 2/23, p. 1), a Harmony Holdings subsidiary (iNTELEFILM is the majority owner of Harmony Holdings). The shuttering of The End resulted in a $900,000 bite from iNTELEFILM’s bottom line. This contributed to a net loss of approximately $10.9 million last year for iNTELEFILM, which reported around $67 million in revenue for 2000 (SHOOT, 3/30, p. 1).
But unlike The End, both Chelsea and Curious have remained profitable businesses. Christopher T. Dahl, president/ CEO/chairman of iNTELEFILM, related that the parent company has received a couple of unsolicited offers to possibly acquire Chelsea and Curious.
"I think our board of directors [thought] the offers seemed to be of a fairly significant nature in terms of value," reported Dahl, "and we thought maybe we should see what the real value is of these operations. It’s not the only thing we’re considering: We are looking at several other merger possibilities. If we don’t sell the businesses, we’ll be happy to keep them."
Curious co-executive producer/head of production Richard Winkler said that the announcement was not unexpected. "INTELEFILM lost a lot of money last year and I think they’re dealing, or have dealt, with most of the reasons for that," observed Winkler. "They’re an investment group and they are looking at various options, one of which is selling us. It’s something that’s been ongoing and we’ve been completely aware of it, and we’ve been included and involved in all the conversations.
"We’re profitable and have been for eight years," Winkler continued. "We operate quite autonomously from iNTELEFILM." Should a sale of Curious come to pass, Winkler stated that he expects it to have no impact on the company’s day-to-day operations. He added, "If there is a sale, it’s going to be with our involvement and [will be] orderly."
A sale of Curious would also likely include DCODE, which, according to Dahl, is under the Curious umbrella. DCODE is a New York-based firm offering strategic planning, creative, and production of commercials and emerging ad forms to advertisers and agencies.
Chelsea president Steve Wax said that his production house remains profitable and successful. "We’ve always contributed money to the [iNTELEFILM] overhead," he added. "So the financial problems that are going on at the iNTELEFILM level have to do with the overall market, not our company."
Wax also emphasized that Chelsea has always been run autonomously under iNTELEFILM’s ownership. "We will continue to operate that way, whatever happens," he affirmed. "The safety valve, if you will, for me and my partners—[executive producer/head of sales] Lisa Mehling and [managing director] Allison Amon—is that we run the company and have the relationships with the clients and the directors. It’s our company in that sense. With iNTELEFILM or anybody else [that might acquire Chelsea], there has to be a strong bond of cooperation between us—or it doesn’t work."
Wax declined to comment on the possibility that the Chelsea partners might buy back the firm. "I’m not in a position to hazard a guess about the outcome of all this, other than that Chelsea has been around for fifteen years," said Wax. "We’ve a very resourceful, tough company, and it’ll continue to be around for another fifteen years."
If any deal or deals involving Chelsea and Curious come to fruition, money raised from the sale of the companies would be used, in part, to subsidize iNTELEFILM’s costly ongoing legal battle against ABC Radio Networks and The Walt Disney Company. In 1996, Children’s Broadcasting Corporation (iNTELEFILM’s predecessor company) filed suit against both parties, claiming misappropriation of trade secrets and alleged breach of contract.
A jury awarded iNTELEFILM $40 million in damages in ’98, but a federal judge—while upholding the liability—tossed out the monetary award in January ’99. INTELEFILM appealed the decision and, on April 10, was granted a new trial to determine damages.
About to relinquish his president/CEO duties, Dahl will primarily be responsible for managing the Disney/ABC lawsuit. "My desire is to concentrate on the litigation so we get our money this time," stated Dahl, who will continue to serve as iNTELEFILM chairman. INTELEFILM plans to hire a president/CEO to succeed Dahl.
If sale proceeds materialize, they would also be used to fund development of archival software for webADTV, an iNTELEFILM subsidiary opened in March ’00 (SHOOT, 3/3/00, p. 7). WebADTV began as intelesource.org, a video archiving and retrieval source that iNTELEFILM launched in January ’00 in partnership with three other firms (SHOOT, 1/7/00, p. 7).
Thus far, iNTELEFILM has spent around $2 million in start-up costs for webADTV, which recently raised $600,000 in private equity financing. Dahl said iNTELEFILM had discussed divesting itself of webADTV. "That was a direction that we were thinking about going in some time ago. In these economic times, we look at all options and opportunities. [Selling webADTV] might be one we’ll take a look at in the future, although we’re keeping it in-house for the time being."
INTELEFILM also faces the prospect of its shares being delisted by NASDAQ for failing to maintain NASDAQ’s minimum tangible net worth requirement. The company was issued notice of noncompliance, and NASDAQ is reviewing iNTELEFILM’s eligibility for continued listing of its shares.
Additionally, two board members have resigned from iNTELEFILM: William Spell, who presides over a private equity firm; and Michael Wigley, who most recently served as chairman of webADTV. Remaining board members are currently seeking replacements to fill the vacated seats.
