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German firm pursues Henson ownership

Courtesy of the LA Times
February 15, 2000

Jim Henson Co., home to such popular family franchises as "The Muppets" and "Bear in the Big Blue House," is in talks to sell part or all of its family entertainment business to Germany's EM.TV & Merchandising, according to industry sources.

EM, a fast-growing publicly held media company based in Munich, acknowledged last month that it was close to making a U.S. acquisition but declined to divulge the company's identity. Sources say the company has been looking for a source of children's programming for the Junior kids' channels it owns jointly with Kirch Group.

In recent months, EM has also approached another animation studio, DIC Entertainment, about an acquisition. Sources said talks stalled, however, as DIC's owner, Walt Disney Co., weighs its options. Disney recently hired investment banker Bear Stearns & Co. to assess alternatives for the Hollywood-based animation studio known for such family titles as "Inspector Gadget" and "Madeline."

The Henson sale underscores the difficulty stand-alone companies face amid the continuing consolidation of the media business into the hands of a few powerful conglomerates, such as Time Warner, News Corp., Disney and Viacom, that control both programming and distribution channels.

While terms of a potential deal between Henson and EM are unclear, sources said the German company is willing to pay a huge premium for one of the last independent name brands in family entertainment, whose library includes 400 hours of TV programming. One source suggested that EM bid $800 million for the company, beating out Hollywood studios that had offered half that.

Several industry insiders doubted the figure because of Henson's spotty performance and weak cash flow. The privately held company, owned by the five children of its founder, late puppeteer Jim Henson, is said to be profitable, with annual revenue of more than $200 million. About 25% to 30% of the revenue is Muppet-related.

In 1989, Walt Disney Co. had agreed to buy the company for $150 million. The deal fell apart after Henson's sudden death in May 1990, with both companies suing each other before settling in May 1991, with Disney paying $10 million for limited theme park rights to the Muppets.

Executives who work in family entertainment say Henson's biggest asset is its brand name and its characters' ability to attract viewers to television screens, Internet sites and theaters.

However, Henson has struggled in recent years to invent new characters, reinvigorate its existing ones and generally grow the brand, industry sources suggest. For instance, Henson produced no successful programs under a long-term production partnership with ABC that is soon to expire and that industry sources call one of the most lucrative deals in television.

The failure of Henson's last two movies, "Muppets From Space" and "The Adventures of Elmo in Grouchland" and the misfiring of its last Muppets TV series, "Muppets Tonight," illustrate the difficulty of keeping evergreen characters fresh and relevant at a time when young viewers prefer edgier fare such as "The Rugrats" and "Pokemon."

EM Chief Executive Thomas Haffa did not respond to an interview request, and Henson Co-President Charles Rivkin declined to comment on what he termed "rumors." But sources say EM has been talking to Henson for several months.

EM has been on a buying binge since going public in October 1997 in Germany's red-hot public market. Sources say the company, which raised $10.4 million in its IPO, is worth several billions of dollars today and has been using its rising value to aggressively buy and license programming. Haffa, who formed the company with his brother Florian, have aspirations to turn EM into a global media giant.

EM shares soared after the company formed the 50-50 venture a year ago with Kirch, under which the partners agreed to launch Junior channels and EM received rights to 20,000 half-hour shows, including "Bugs Bunny," "The Simpsons" and "The Flintstones."

EM has also taken stakes in the German film production company Constantin Films and bought 45% of TeleMuenchen Group, which owns TV channels in Germany, Austria and Hungary.

EM also owns 50% of Plus Licens, a major licensing outfit in Sweden with rights to the "Peanuts" and "Dilbert" cartoons.

Sources said Henson has run out of capital to further expand its businesses.

In July, Rivkin and his co-president partner, Brian Henson, son of the late "Muppets" creator, acknowledged they were seeking financing for the company's core TV and movie businesses.

Henson's respective TV and movie production deals with Disney-owned ABC and Sony Pictures both expire in August, leaving the company with no one to underwrite the operations.

Henson also lacks a major distribution outlet, despite ownership stakes in Odyssey Channel, Kermit Channels overseas and a passive interest in Noggin, Nickelodeon's U.S. educational channel. Henson also owns the historic Chaplin Studios in Hollywood, which the family purchased in November from Seagram Co. for $12.5 million.

Henson's special effects Creature Shop in London and Burbank is said to be a profit center.

Currently, the Henson company has three shows on the air in the U.S.--"Bear in the Big Blue House" (Disney Channel), "Farscape" (Sci-Fi Channel) and "Donna's Day" (Odyssey)--and two in Britain--"Mopatop's Shop" and "Construction Site" (ITV).