Sullivan stumbles
'Anne' play, cool market thwarts IPO plans
The company withdrew its initial public offering Friday, capping off a disastrous week during which the copyright owners and heirs of L.M. Montgomery, the author of the books upon which the hugely popular "Anne" miniseries and "Road to Avonlea" TV series are based, held a press conference to outline their long-standing dispute with Sullivan over royalty payments.
Sullivan signed agreements with Montgomery's heirs in the 1980s for upfront sums from the series, a percentage of net profits in perpetuity and regular audits of the company's books. According to Marian Hebb, the lawyer for the two families who own the rights, Sullivan has claimed that, despite having been sold worldwide, the "Anne" series have failed to generate any profits and therefore there are no royalties owed.
Family goes public
Hebb said Sullivan also refused to provide adequate details regarding the company's accounting practices and part of the reason for going public regarding the dispute was because they were stonewalled.
"It's certainly cheaper to tell one's story to the press than it is to commence legal proceedings," Hebb said. "Hopefully Sullivan will pay attention and talk to the family again and provide the information they've requested."
Sullivan issued a brief press release confirming that it has withdrawn the stock issue "in light of market uncertainty resulting from statements made on July 6, 1999, by certain descendants of Lucy Maud Montgomery and their counsel at a press conference called by them," but a spokesperson would not elaborate.
The Sullivan issue was scheduled to be priced the day the press conference was held. "This effectively scuttled the IPO," said an industry pundit who asked not to be named. "It's a crying shame that Sullivan didn't succeed in resolving this issue in advance of the IPO."
He added that from the point of view of potential investors, they must be breathing a sigh of relief that this came out before they put their money down. In its preliminary prospectus, which put the company's estimated earnings for the current fiscal year at C$6.4 million ($4.4 million) on revenues of $24.3 million, the company stated that Montgomery's heirs are owed a maximum of $102,000.
Profit problem
The company's claim not to have made any net profit is clearly ludicrous, the source said. "I guess what happens is that one falls into the trap of the famous Hollywood net profit," he added.
"I'm not sure that I would necessarily say that it's entirely due to the announcement of the 'Anne of Green Gables' news," said Roger Dent, an analyst with Yorkton Securities in Toronto. "In the grand scheme of things, the suit was not that economically substantial."
The current chill on IPOs -- several have been withdrawn in the last two months -- combined with what Dent feels was a high price to earnings ratio that the company was requesting compared with other entertainment stocks in Canada, is just as much to blame, he said.
