CAA urges Credit Lyonnais to resist offers from asset-strippers

MGM may be ditching its historic Culver City roots for a new Santa Monica roost next month, but has it finally turned the corner on a troublesome past?

New signs suggest it has, but some important decisions are hanging fire this week. According to informed sources, Credit Lyonnais, which owns 98.5% of the studio, has an offer on the table from an entity that would acquire MGM and United Artists with the avowed intent of breaking it up and disposing of its assets.

The prime target: UA’s 1,100-title library, which includes the James Bond and “Rocky” movies as well as the “Pink Panther” series. The MGM theaters overseas are other coveted assets.

Should CL accept that offer and pull the plug on MGM, sources fear the demise of Carolco Pictures, another financially strapped CL client, would soon follow. As the jeopardy factor hovers above both, Creative Artists Agency is understood to be counseling CL against the breakup of MGM, favoring a major capital infusion by the bank.

The French bank has just brought aboard CAA to advise it on its $ 3.1 billion entertainment portfolio. Sources say the CAA strategy is to encourage the bank to pump in enough capital to effectively ward off asset-strippers.

The CAA strategy also calls for spinning off UA into a separate production entity and raising outside funding, probably from overseas. The UA spinoff might involve a group of investors rather than just one entity.

Similarly, a group of entities is being mobilized by CL and CAA to finance future MGM films. The bank has been the sole source of funds for MGM films at a time when other studios like Disney routinely pass the hat among groups of investors.

Under the new strategy, MGM and UA films would be funded by groups along the Disney model. The results of this tug of war could be revealed this week, and sources are betting that the CAA strategy will prevail. Until then, MGM’s blueprint for success is being sketched out in other areas.

One part of its strategic plan: To line up a purchaser for MGM when the bank divests itself of its holdings, which must occur by 1996. That deadline means that a deal must be put in play by the end of next year.

Aside from the studio’s move into its new 200,000-square-foot home, CL has just handed MGM a new $ 190 million credit line to prime the production machine.

But CAA chairman Michael Ovitz has refused to discuss any details of his agency’s new relationship with CL. That relationship has kept the 2,400 worldwide staffers at MGM fretting once again over their fates — a common pastime during former owner Giancarlo Parretti’s brief, aborted regime.

Some have speculated that CAA wants to run the operation and will advise CL to clean house at MGM from the top down. But CAA sources find the speculation both amusing and irritating. They insist the agency’s sole interest is to help the bank breathe life back into the studio.

Also, MGM studio chief Alan Ladd Jr. has contractual autonomy to run MGM free of intervention from CL, CAA or anyone else.

As for Ovitz’s agenda, sources close to the bank believe he has bigger fish to fry. By advising CL on its MGM problem, Ovitz will have access to the huge bank’s client portfolio in Europe.

As one source close to Ovitz put it: “Mike is after the Coca-Colas of Europe. He wants to be a worldwide player. He has no desire to run a studio.”

Regardless of any outside agenda the agent may have, advising CL on improving MGM’s plight could keep another employer of talent alive in this town. And should CL take Ovitz’s advice and revive both MGM and UA, Ovitz gets to boast of bringing more capital and jobs into the industry, inflating his power base.

So while Ovitz maneuvers, MGM holds out new hope.

Ladd is also banking on MGM’s new business plan, under which the studio has the green light to produce 10 pictures a year with an average budget of $ 20 million. The same is expected for UA, if and when it is spun off as a new production unit.

In addition, MGM is awaiting final approval of its new distribution pact with Carolco from the Securities & Exchange Commission. MGM has agreed to advance the struggling indie $ 60 million for an equity stake in and distribution rights to its pictures that begin production after Jan. 1, 1994. TriStar has been the distributor of Carolco product, pictures that account for a significant share of the films funneled through TriStar’s pipeline.

Since a final agreement has not been signed between MGM and Carolco, TriStar has been in discussions withCarolco separately to try to win it back.

“We have had an ongoing relationship with Carolco for years, and I love Mario (Kassar, Carolco’s chairman),” says TriStar chairman Mike Medavoy. “What people don’t realize is that we have co-financed ‘Cliffhanger’ and not only that, it is a substantial sum invested. The reason I say this is because we have always taken this relationship very seriously. We have been in discussions with them, and if it works out, fine. If it doesn’t, it will be because the bank didn’t like it.”

Aside from Carolco, MGM is also pursuing other high-profile relationships to create product for its distribution pipeline.

One look at MGM’s year-end balance sheet and the need for outside product becomes clear.

The studio’s box office performance has suffered dramatically since the highly leveraged $ 1.3 billion MGM buyout by Parretti on Nov. 1, 1990. Under Parretti’s rule, MGM was unable to pay its bills. Trade creditors threw the company into bankruptcy; labs held back on release of MGM’s stronger films, delaying timely playdates and consequently wounding its box office results; and top-drawer talent avoided doing deals with the studio as if it had the plague.

CL stepped up to the plate, kicked Parretti out after a lengthy court battle, pulled MGM out of bankruptcy and has continued to pour production money into the studio at about $ 1 million a day.

The evidence is in MGM’s year-end balance sheet. According to its annual 10-K statement, MGM borrowed $ 489 million over its credit line of $ 395 million in 1992.

On March 25, CL granted MGM another three-year revolving credit line of $ 190 million to finance new films. That will eventually be new debt added to the $ 884 million outstanding total.

What is critical about the new line is that it represents the first time CL has officially committed to standing behind MGM before 1996, CL’s deadline to sell.

At year’s end, MGM showed revenues of $ 936.69 million on a net loss of $ 271 .13 million. The company, however, managed to cut that loss by 28% from 1991’s loss of $ 347.43 million.

Although MGM’s underperforming films have contributed to its poor balance sheet, CL did not slight Ladd or other executives in their compensation packages. The annual MGM report showed that Ladd received a base salary last year of $ 2.66 million plus a bonus of $ 750,000. He would get 1% of the net proceeds if MGM were sold.

If he left the company before the end of ’93, he would get the balance of his salary plus another $ 1.5 million. If he stays to complete his contract, he gets another $ 541,667.

From his eighth-floor office in Culver City, a weary Ladd looks out his window at the former MGM lot below that now belongs to Sony.

“What I see is what once was. I’m counting down the minutes until we leave here,” says Ladd, referring to the move to new company headquarters at the former Colorado Place, renamed Metro-Goldwyn-Mayer Plaza. “We have been so snakebit. I feel like the move to Santa Monica means a lot more than just fresh air. I just feel like our luck may finally change.”

One such augur came with the arrival of the studio’s current release, ‘MDBO’Benny & Joon,” which opened Friday and pulled an impressive estimated weekend gross of $ 3.4 million on just 408 screens.

And the year is still young. On MGM’s plate is Blake Edwards’ “Son of Pink Panther,” the film version of the play “Six Degrees of Separation,” Robert Townsend’s “Meteor Man,””Undercover Blues” and the Dana Carvey-starrer “Clean Slate.”

“That’s what I’m hoping for … a clean slate,” says Ladd.

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