LOS ANGELES—Private Media Group last week filed a Form 8-K that announced the consummation on May 23 of a settlement with former CEO Ilan Bunimovitz, Andrew Sullivan, Peter Marinac, two subsidiaries of the Company (ThinkForward, Inc. and GreenCine, Inc,), and the subsidiaries of those two subsidiaries. ThinkForward and GreenCine were acquired by Private on January 20, 2009, in connection with the acquisition of venerable VOD provider GameLink and eLine.
Bunimovitz succeeded Peter Hall as Private CEO in April 2009, but the honeymoon lasted only a year. By July 2010, then Private president and board chair Berth Milton had fired him for "cause," assuming the chief executive position himself, and by the end of the year Bunimovitz, along with creditor Consipio Holdings and others, had filed suit in Nevada, seeking, and ultimately winning, a preliminary injunction that prevented Private and its subsidiaries from conducting business as usual. By August 2011, a court-appointed was assigned to run the company, but it took almost another year for the case, which now extended to the Nevada Supreme Court, to culminate in the election of a new board, the final termination of Milton and the appointment by the new board of former chief executive Charles Prast to run the company as its newly established CEO.
Prast immediately set to work cleaning up what unfinished business remained, including, though certainly not limited to, Bunimovitz, who, in addition to the Consipio lawsuit, had also sought an arbitration hearing relating to the termination of his employment and the acquisition of ThinkForward, Inc. by Private. The May 23 agreement consummated all unfinished business with Bunimovitz.
"Pursuant to the Settlement Agreement," states the 8-K, "the Company (i) transferred to Messrs. Bunimovitz, Sullivan and Marinac all of the outstanding capital stock of its subsidiaries ThinkForward, Inc. and GreenCine, Inc.; and (ii) issued to Messrs. Bunimovitz, Sullivan and Marinac an aggregate of 1,772,875 shares of the common stock of the Company, representing the shares of common stock to which they would have been entitled under the earn-out provisions under the Agreement and Plan of Reorganization dated as of January 20, 2009 pursuant to which the Company acquired ThinkForward, Inc. and GreenCine, Inc.
"The Settlement Agreement includes a mutual general release between the Company, on one hand, and Messrs. Bunimovitz, Sullivan and Marinac, ThinkForward, Inc. and GreenCine, Inc. and their subsidiaries, on the other hand," it also states, adding, "In addition, Mr. Bunimovitz resigned as a director of the Company on the date of the Settlement Agreement."
On May 30, Prast sent AVN the following comments that addressed the reason behind the initial acquisition by Private of Gamelink, and why the company had decided to divest itself of the property.
“For 44 of its 48 years in business Private has operated as a European-based business with a clear focus on its core assets and competences; a strong consumer brand and an ability to produce commercially successful content," said Prast. “In 2009 Private, as part of strategy to combat declining revenues in its core European business, embarked on a series of poorly executed and under-funded North American acquisitions in the VOD space.
"Unfortunately," he continued, "these businesses, while excellent stand-alone companies, were incompatible with Private’s core assets, competences and geographical focus. In addition, the expectations of the sellers of these companies, including binding legal engagements by Private’s former Board and management, were not met.
"The result," he added, "was an almost lethal combination of misrepresentation, mismanagement, lack of promised operating capital and negative synergies for Private. The divestiture of Gamelink is the first step in returning focus to our core assets. All things considered, we consider ourselves fortunate to be able to divest this business, which suffered under Private’s stewardship, without having to pay more significant damages.
"We are very pleased with the core team at Private and look forward to a renewed focus on our European business which is performing beyond our initial expectations," Prast concluded.
In response to these comments, AVN replied to Prast with a few follow-up questions, seeking a more in-depth explanation for why Private no longer wanted to own a company that, at least according to its own annual report for the year 2010, was responsible for increased revenue in the internet division that offset losses in the other divisions. Now that the old management and directors are gone, we asked, why is the problematic synergy still in play? We also wanted to know what specifically are Private's "core assets" that Prast referred to in his original comments.
“Our core assets are the Private brand and the underlying content, "Prast replied, adding, "Our focus is the exploitation of these assets in the B2C market through DVD sales and private.com and in the B2C market though our two branded broadcast channels and our digital content licensing business. 95 percent of our sales from these core assets have historically occurred and will likely continue to occur outside of North America. If we are to grow as a branded content provider we must focus on what we are good at.
“While Gamelink is a well managed and trusted aggregator of content for the B2C market," he continued, "its sales are not geographically compatible with Private’s traditional strengths. In addition its business model, and associated margin, does not fit with those of Private. It adds to the top line in such a way as to create artificial expectations of our bottom line performance based on historical margins.
“The acquisition of Gamelink included the delivery of promises of performance and expectations of financing by Private that the former Board and management of Private ought to have known were artificial," he added. "One can only imagine the damage done to the business during its ownership by Private by removing its founder. The collapse of the value of the equity provided to the other sellers and senior executives only served to further demoralize the staff struggling to operate in a difficult business environment.
“Private was extremely fortunate to be able to divest itself of this company and the distractions it created," he concluded. "Managing an unrelated business literally nine thousand miles and nine time zones away from Barcelona should never have been contemplated in the first place. Negotiating an exit from this deal with a complete release from any further litigation and without any cash damages is a win for Private and shows great restraint on behalf of the Gamelink sellers.”
For his part, Bunimovitz said he is very pleased to have Gamelink back, and said that despite the fact that he spent two-and-a-half of the three-and-a-half years that Private owned Gamelink fighting with Berth Milton in and out of court, it's all water under the bridge.
"I am always looking forward, never back," he said. "I got my company back and everybody is happy."
Adding that he plans to remain a passive shareholder of Private, Bunimovitz said of Prast's decision to unload Gamelnk, "Charles has a very specific plan for Private, and he is very focused on executing this plan. He streamlined the company around what he sees as the company's competence and is executing on it. I think he is doing a very good job and is going to turn this company around. So, it does make sense what he did. He's making good choices."
