MGM studio talks drag on

MGM studio talks drag on
By Peter Thal Larsen in New York

Financial Times
Jun 28, 2004

Metro-Goldwyn-Mayer is tomorrow expected to tell investors it is still
exploring multiple options for its future as talks about a possible
sale of Hollywood’s last independent studio drag through the summer.

MGM is set to give shareholders the update at its annual meeting
tomorrow amid continuing talks with Sony, the Japanese electronics
giant, which has made a preliminary $5bn offer for the company.

Last month, MGM delayed the date of its annual meeting by six weeks so
its board could consider what it described as “strategic
alternatives”. At the time, people close to the negotiations said MGM
was hopeful it could agree a deal before the end of June. But those
people now believe a deal – if one can be reached – is unlikely to be
announced for several weeks.

Sony, which is bidding as part of a consortium that includes
Providence Equity Partners and Texas Pacific Group, the private equity
firms, is still considered the most likely buyer for MGM.

However, the delay could give rivals such as Time Warner more time to
decide whether to submit an offer.

Time Warner is familiar with MGM’s operations as it has studied making
an offer for the studio in the past, and executives of Time Warner and
MGM have held talks in recent weeks, people close to the discussions

Dick Parsons, Time Warner’s chairman and chief executive, is keen to
preserve some of the company’s financial firepower as he prepares an
offer for Adelphia, the bankrupt cable group currently up for sale.

Time Warner is thought to be restricted from issuing shares to
investors until the US Securities and Exchange Commission has
completed its investigation into accounting practices at the company’s
America Online.

But some investors believe Time Warner could circumvent those
restrictions by issuing stock directly to Kirk Kerkorian, the
billionaire investor who is MGM’s controlling shareholder.

Sony’s consortium is designed to limit the Japanese group’s financial
commitment to a deal. Under the terms, Sony and its partners would
commit about $1.5bn in equity, and finance the rest of the
consideration with debt secured on the cash flow from MGM’s film

But this structure has raised questions about how the private equity
firms will be able to cash in their investment. NBC Universal, the
entertainment arm of General Electric, had been seen as another
potential bidder. But it is thought to be concentrating on integrating
its merger with Vivendi Universal’s US entertainment assets.

From: Emil Lazarian | Ararat NewsPress