News on the MBO of Tom Cruise moves fast. I regarded with skepticism the news that hedge funds were lined up to liberate Cruise from the evil and repressive forces of Paramount. ("I am not a destroyer of companies, I am a liberator of them." And speaking of Gekko, maybe we should buyout and breakup Tom Cruise. Somewhere, right now, someone is desperately waiting in an ICU for Tom Cruise's kidney). So imagine my non-surprise to learn from DealBook that Tom Cruise has taken a 70% salary cut and now works for Mark Cuban.
By "Mark Cuban" I mean someone who managed to dump a mostly valueless business at the hight of the dot-bomb boom and used the proceeds to buy a sports team. The only difference is this time "Mark Cuban"'s name is actually "Daniel Snyder" and he also owns a big hunk of the flagging Six Flags, Inc. (because you know what Six Flags, Inc. really needs to turn itself around is an investment in a manic Scientologist movie star). Not exactly the $100 million deal from well-funded hedge funds we were promised. I'm disappointed. Says DealBook:
While Ms. Wagner said they were eager to work with entrepreneurs, Mr. Cruise and his representatives have actually been shopping for another home in Hollywood all summer without success, talent agents and movie executives told The L.A. Times. At least three studios had rejected Mr. Cruise’s terms, they said.
Says the Wall Street Journal (subscription required), cited by DealBook:
First and Goal LLC, whose backers include Six Flags Inc. Chairman Daniel Snyder, who owns the Redskins, and Six Flags CEO Mark Shapiro, will put up cash each year for offices, staff and costs associated with developing movies at Mr. Cruise's Cruise/Wagner Productions. Their investment, which sources familiar with the deal said was about $3 million a year, doesn't include movie-production financing, which the production company will have to come up with separately.
So, let's review. The smartest money in the business tells Cruise to pound salt, and people with no background whatsoever in the business (except that they have seen some Cruise films, oh, and they stayed at Holiday Inn Express) pick up his deal at 30% of the overhead, provide exactly zero of the production costs, and end up with some undisclosed terms on his cut of revenues.
Another thing to note. Cruise isn't exactly poor. Why isn't he putting together his own studio? Investing $3 million a year in himself for a larger cut of the revenues? Always beware MBOs where management won't put skin in the game.
If Cruise was going to take a bath like this anyhow, you wonder why he didn't stick with the studios. Or perhaps they simply wouldn't have him except at a much larger discount rate for his risk than the Vegetable Capital entrants who have now funded him. When even the hedge funds (and let us not forget that they funded Poseidon) won't touch you... well, I leave the rest as an exercise for the Going Private reader.
One thing occurs to me. Maybe Vegetable Capital is what Cruise was looking for. An absentee manager with no experience in the business who can be led around eagerly for the chance to hob-nob with the stars and when asked about the supervision of Cruise issue vague platitudes like: "We have our day jobs to do."
Nah, I think Cruise has just outlived his usefulness, botched his own valuation, and was played like a cello by the world heavyweight champions of the business.
Someone needs to give Nicole Kidman a job at a hedge fund with an event driven strategy. She shorted Cruise and, though her positions haven't been disclosed, seemingly went long on Jude Law, with admirable timing.
