The Muppets Come Home

In "The Muppet Movie," a 1979 minor classic produced by Jim Henson, Kermit the frog is pursued by the rapacious Doc Hopper (Charles Durning), who would force him to shill for his chain of fast-food frog's leg restaurants. Kermit and his fellow Muppets elude Hopper and his henchmen (including an evil German scientist played by Mel Brooks), make it to Hollywood, and become stars on their own terms.

Something like that happened in real life last week when the Henson family bought back Jim Henson Co. from EM.TV & Merchandising AG, a German media firm. The deal is a cause for joy for the Hensons, and for everybody else.

For the Henson family, it is a homecoming. "Emotionally and psychologically we feel something has been put right," said Lisa Henson, who started running the Henson production company just after the original sale. Family patriarch Jim Henson created the Muppets in the mid-1950s, later invented the Sesame Street characters, and was the voice of Kermit before he died in 1990 at age 53.

Family members say they rallied and decided to bid just 16 days before the deal was announced. A big part of the motivation was the chance to honor their father's legacy. Meanwhile, the Muppets will be repatriated from a land whose most famous children's stories are from the Brothers Grimm.

Press reports on the sale focus on the price: The Hensons paid just $78 million for the company they sold in February 2000 for about $680 million in cash and EM.TV stock. But the two numbers standing alone are misleading. First, before it sold the company back to the Hensons, EM.TV unloaded the Sesame Street characters and Henson Co. stakes in three cable networks for a total of $293 million. Second, about half the original price was paid in EM.TV stock. Those shares soon lost most of their value as EM.TV imploded. Deduct the Sesame Street and cable sales and account for the decline in EM.TV shares, and the 2000 and 2003 sale prices come out fairly even.

Henson Co. still includes film and licensing rights to the Muppet characters -- Miss Piggy, Fozzie Bear and Dr. Bunsen Honeydew among them -- as well as The Fraggles, Bear in the Big Blue House and others. It also holds a library of 450 films and TV episodes; the Jim Henson Creature Shop, which builds puppets and creates special effects; and a top music-recording studio in Hollywood.

With assets like that, $78 million does seem awfully cheap. Why didn't a media conglomerate, Walt Disney in particular, snap it up? The answer is part of the good news, too.

First, EM.TV itself is in awful straits. The Haffa brothers, who controlled the company when it bought Henson, were forced out soon after. Once globe-straddling, race-car-owning multibillionaires, their fortune is all but gone. Other German media moguls have suffered similar fates. "Three or four years ago, the vogue was to sell to the Germans. They were going to control Europe," says Porter Bibb, a New York investment banker who specializes in media properties. That process has reversed itself, with the Germans conducting a fire sale.

Other processes are moving in reverse, too. Three years ago, media giants like AOL Time Warner Inc. and Vivendi Universal SA were triumphant. Since then, their share prices have fallen 75% -- not as bad as the Germans, but not good. Other media companies like Viacom Inc. and News Corp. are still buyers, but not like the old days.

When the big companies were getting bigger, smaller outfits were running scared. Join a major or die -- that was the fear. Media titans "wanted to deal with a company they owned 100% of," says Brian Henson. Why broadcast a show (like the Muppets) when they could choose some other show and own the merchandising and everything else? Today cable and broadcast networks are more ready to deal. The change leaves more room for niche players.

When they bought the company, the Haffas promised to invest $150 million on marketing to build the brand. "It never happened at all," says Mr. Henson. Instead the company has been for sale nearly continuously since 1999. That state of affairs wreaked havoc on operations.

If the company has been on the block for four years, Walt Disney Co. and CEO Michael Eisner have been trying to buy it off and on for three times as long, since before Jim Henson died. In March, Mr. Eisner suggested he was near a deal "finally culminating years of romance."

Mr. Eisner, Doc Hopper come to life, was left at the altar, but why? Sources close to Disney blame Allen & Co., the investment bank, for the way it conducted the sale. They also say that the vagaries of German bankruptcy law made closing the deal too risky. It's highly unlikely Disney would have been dissuaded by such trivia back in the day.

What happens next isn't certain. The Hensons will have to maneuver among giants, and while the Muppets are a global franchise, Henson isn't Disney. Of course, in showbiz nothing is ever a given. As Kermit himself said when he and his friends were stranded in the desert on the way to Hollywood, "I never promised we'd make it; I never promised anything." Kermit was a dreamer. So are the Hensons, and they like their chances.