Japan hardware giant wants MCA for its software.

Japan hardware giant wants MCA for its software

Will Hollywood become the battleground in the competition between two of Japan's biggest companies?

To be competitive, does a major entertainment company have to be bought by a large, international conglomerate?

And does

Those were just some of the questions being asked last week when the normally closed-lipped, Universal City-based MCA Inc. said it was up for sale and that one of Japan's largest companies, Matsushita Electric Industrial Co., had made an offer.

Neither company has revealed the asking price but reports are circulating that Matsushita has offered between $7.4 billion and $8.3 billion, or $80 to $90 a share for MCA, whose assets include Universal Pictures, Universal Studios Tours, 420 acres of property in Universal City, part of a major record company and a New York television station.

MCA's projected 1990 revenues are $3.5 billion compared to $3.4 billion last year while Matsushita, a huge Japanese company, expects revenues of $45 billion this year.

Why does MCA want to sell and why does Matsushita want to buy?

Even though the Japanese stock market is seriously depressed and the United States may be in or heading toward a recession, Matsushita wants MCA in order to compete in this country with Sony Corp., its main rival and another Japanese electronics company that last year bought Columbia Pictures Entertainment for about $5 billion.

According to industry experts, Matsushita is looking for a vast library of films, television shows and records for consumers to play on the company's home entertainment equipment. Last year, Sony bought Columbia for the same reason - programming.

Matsushita, analysts said, is looking ahead to the advent of high-definition television, whose inventor works at the company. Beyond high-definition television, the company says it wants to develop computer-controlled audio visual and home automation systems.

Basically, analysts have said, Matsushita has the hardware and now wants American software.

The more complex question is, why is MCA interested in selling?

MCA, analysts said, has been waging an uphill battle against other entertainment companies like Walt Disney, Time Warner, Fox television and Sony. MCA has been slow in expanding into many different areas and now has to play catch-up to its competitors.

But is selling to a Japanese company the answer?

Analysts have asked what control the Japanese company would exert over MCA and whether its creative talent and management would remain intact.

In previous takeover talks, the question of whether management would remain has been a stumbling block. Some analysts have said that part of MCA's problems in the past has been its inflexible and conservative management, which is headed by chairman Lew Wasserman and president Sidney Sheinberg.

A Matsushita official reportedly said last week that management would remain and that there would be no layoffs if the buyout proposal goes through.

But analysts have questioned whether selling to a Japanese firm is the answer because there have been rumblings that not all is well at Columbia since the Sony takeover.

In the Los Angeles area, analysts have also noted that some of the numerous Japanese acquisitions have not been as profitable as expected and there have been problems with the Japanese style of ownership.

The advantage of such a deal for MCA would be the deep financial resources of Osaka-based Matsushita, one of the largest electronics companies in the world.

Last year, the company's 94-year-old founder, who has been described in Japan as "god-like," died. He had built the company on strong, conservative management and less on innovation and creativity, analysts said.

A deal with a company like MCA, would heighten Matsushita's efforts to promote an international corporate image and to expand its software base.

"If they (Matsushita) don't get into software, they will be at the end of their rope very soon," a securities analyst in Japan told the Wall Street Journal.

Other analysts have said that the proposal also signals Matsushita's desire not to be left behind Sony in high-definition television. Having access to entertainment software would support sales of Matsushita's equipment.

The announcement of the buyout offer comes at a time when there was speculation in Los Angeles that MCA was attempting to start a fifth television network through its ownership of WWOR, a New York station that broadcast out of Secaucus, N.J.

The ownership of that station could now turn out to be a roadblock to the proposed takeover.

Under federal regulations, it is illegal for a foreign company to own more than 20 percent of a domestic television station. Rupert Murdoch, chairman of News America, ran into the same problem when he bought television stations in several cities but he resolved the conflict by becoming an American citizen.

The stations are now part of the Fox network.

Both MCA and Matsushita officials have said the proposal is far from completed and that discussions are only in the preliminary stages. Analysts have warned that proposed deals like this one have fallen apart after they were made public, but investors have reacted as if the transaction was complete.

In the three days following disclosure of the proposal, MCA stock climbed almost $25 to close at $59.37 on Sept. 27.

On Sept. 25, after the disclosure, the stock increased more than $19 on the New York Stock Exchange.