M&F investors, Perelman ordered to work out deal. (Up Front).

A roiling feud between billionaire investor Ronald Perelman and other investors over transactions involving Woodland Hills-based Panavision Inc. took a turn toward settlement last week, when a Delaware judge ordered the two sides to work out a deal.

Delaware Chancery Court judge Leo Strine Jr. on July 11 abruptly halted court proceedings at a trial involving Perelman's April 2001 sale of 83 percent of Panavision to another company he controlled, licorice extract maker M&F Worldwide Corp.

Minority investors in M&F, where Perelman controls 57 percent of the voting stock, sued to rescind the deal. They claim Perelman, who took in $127 million in the sale, benefited by directing M&F to pay more than four times Panavision's market price for his shares.

"The judge has adjourned the trial and wants to see the fruits of the settlement efforts on (July) 22nd," said James Conroy, senior vice president and special counsel for Mafco Holdings Inc., Perelman's personal investment vehicle. He declined to discuss the status of negotiations.

The judge's action took some of the steam out of enmities that had been rising for weeks.

Just last week, some of the same Perelman opponents were up in arms about a more recent set of transactions between Mafco, Panavision and M&F. Essentially, they claim Perelman, whose own fortunes have faded in recent years, has aided his personal financial cause at their expense.

"This is another case of Ron Perelman rearranging financial affairs at the expense of shareholders," said Daniel Breen III, president of Furtherfield Partners, an M&F shareholder, speaking before the judge's action.

The newer complaints center on a series of July transactions that restructured $37.7 million in debt at Panavision, a maker of cameras that are widely used in the film industry.

Panavision is more than 80-percent owned by M&F, but Perelman effectively controls both companies through his M&F stake. Investors say he used M&F's capital to ensure he won't take losses on loans he's made to Panavision to keep it afloat.

"Why are we constantly having to bail Ron Perelman out of his investments?" Breen asked.

The latest set of transactions occurred as Panavision faced demands from bank lenders to reduce its debt load by $100 million and find $10 million in new equity before a June 30 deadline. Perelman, finding no takers for Panavision securities in the public markets, was forced to use Mafco to satisfy the banks' demands and avoid default.

Mafco put $10 million in cash into Panavision and sold back $37.7 million in Panavision debt to the company, which Panavision retired. In exchange, Mafco received $49.2 million in face value of newly issued preferred stock in Panavision. But the deal left open the possibility that M&F could later assume Mafco's place in the transactions.

"He would have preferred that the capital markets finance this," said Mario Cibelli, a fund manager whose Marathon Partners fund owns approximately 50,000 M&F shares.

Mafco also exercised an option to buy $78.4 million in Panavision notes from an unidentified third party for $50.9 million, plus interest.

The transactions, announced by Panavision on July 2, serve two purposes, other M&F shareholders said. Over the near-term, Mafco's investments prevent Panavision from going into default. They also provide Perelman with protection on his investment in case he loses the Delaware court case, and heavily indebted Panavision is forced to stand on its own.

As part of the deals, M&F was granted rights to buy the Panavision notes and the preferred stock from Mafco. But since Perelman controls both, he can direct M&F to assume Mafco's potential losses -- lowering his personal exposure.

"It's basically corporate theft," Breen said. "He has subsidized his investments in other companies with (M&F) shareholders' money."

Panavision has lost money in each of the last three quarters while also increasing its debt load. On March 31, the company had $454.7 million in long-term debt, compared with a stock-market value of approximately $40 million.

The pressure rose earlier this year when Panavision failed in an attempt to raise $200 million in new notes that it planned to use to retire some of its existing debt. The April announcement, citing poor market conditions, came one day after Panavision reduced the offering by $50 million in a last-ditch attempt to pull off a deal.

M&F shareholders say the Mafco transactions are further proof Perelman organized the purchase of Panavision by M&F to bail himself out of a bad investment.

"Based on the track record here, if a reduced-debt Panavision is able to salvage some of the equity value you can be assured (Perelman) will keep it. If not, he can just have M&E buy it back," Cibelli said. He spoke before the judge's order.

Essentially, Perelman was able to use the $129 million that M&F paid him to restructure Panavision's balance sheet, Cibelli argued.

Sweet Deal

Perelman sold for four times trading value.

July 10, 2001  $5.88
July 11, 2002  $2.85

Note: Table made from line graph