Another day, another General Cinema Corp. deadline, or two.
The company vowed to yank its cash tender offers and its $1.5 billion Harcourt Brace Jovanovich Inc. merger agreement if Harcourt bondholder holdouts failed to tender 90% of the securities in each of five classes by Monday.
But when the holdouts held fast, General Cinema extended the deadline first to 2 p.m. and then to 5 p.m. yesterday.
"They'll [General Cinema] look very foolish if this doesn't go through," one high-yield fund manager said yesterday, adding, however, that he believed it would. A three-hour extension indicates that agreement must be close.
"You don't extend it from 2 p.m. to 5 p.m. and then end up with the same set of numbers," he said.
But even after the 5 p.m. deadline passed, General Cinema spokesman Peter Farwell was providing no answers.
"We're just not going to have anything to say," he said. He also declined to say why General Cinema extended the deadlines. The company will have an announcement today, he said.
All Harcourt bondholders stand to lose if General Cinema walks on the agreement, the fund manager said.
"They'll get creamed," he said.
But the holdouts are gambling that enough other holders will tender their securities, pushing the merger through and leaving the holdouts with a high-coupon security and General Cinema, an investment-grade company, as the underlying credit.
While he has heard some fear expressed that the high-yield market will tank if the Harcourt deal falls through, the manager believes it would be an "isolated incident."
A Standard & Poor's analyst agreed. "I don't think the market is hanging on this one deal so much," he said, but added, "You might make the case that this would put a chill into the deep-discount market."
The manager also theorized earlier yesterday that the holdouts might know something that the rest of the market does not.
"This is not the ultimate investment here. There is a hidden agenda, I think," he said.
Possibly a firm such as Kohlberg Kravis Roberts & Co. might be looking at Harcourt, he said, emphasizing that he had no such knowledge of any such bid.
"It wouldn't surprise me," another trader said. The trader added that he heard a big insurer was the holdout. He said he was unaware of the company's name.
A spokesman for Kohlberg Kravis said it has a policy of not commenting on such matters.
But a "crown-jewel" clause allows General Cinema to buy Harcourt's academic press division if Harcourt announces a deal with another buyer within four months of termination of the merger agreement and consummates it within six months, Harcourt officials have said earlier.
At close of business Monday, Harcourt bondholders had tendered 88.4% of the 90% of securities in each class General Cinema has demanded to close the deal. That marked only a marginal improvement over the 87.5% tendered as of close of business Friday.
As on Friday, the 14 1/4% subordinated debentures holders proved to be the biggest holdouts, tendering only $163 million, or 81.4% of the $200 million in debt outstanding.
Holders had tendered $184 million or 92% of the $200 million of 13% senior notes outstanding, $438 millionor 87.6% of the $500 million of 13 3/4% senior subordinated debentures, $455 million or 89.6% of the $507 million of 14 3/4% subordinated discount debentures and $394 million or 89.4% of the $440 million of 14 3/4% of subordinated pay-in-kind debentures.
Asked why General Cinema would want Harcourt, Moody's Investors Service analyst Craig Fitt said, "Because the assets at Harcourt are fine assets. . . The problem at HBJ is that it is saddled with an enormous debt load."
The high-yield market was off as much as a 1 1/2 points in some areas, while the investment grade market followed Treasuries down and witnesses "slow and sluggish trading," traders said.
In yesterday's ratings actions, Standard & Poor's Corp. has placed Maytag Corp.'s A-minus senior unsecured debt rating on CreditWatch for a possible downgrade.
The action affects $636 million of debt. The agency did not, however, place the company's A-2 commercial paper rating on CreditWatch. Weaknesses in several of Maytag's business segments together with Standard & Poor's expectations for a relatively weak recovery in 1992 were the main reasons for the move, Standard & Poor's said.
