NEW YORK — Metro-Goldwyn-Mayer Inc. overcame a broad stockmarket slump to sell its stock offering at $20 a share Wednesday, raising $180 million for the Lion, which will be supplemented by $75 million from controlling shareholder Kirk Kerkorian.
As a result, MGM stock will start trading on the New York Stock Exchange today, with MGM chairman/CEO Frank Mancuso and other senior execs on hand to witness the first few trades.
The final offering price was at the bottom end of the tentative range of $20 to $23 outlined in MGM’s prospectus, despite MGM’s decision Monday to shrink the size of the offering from 12.5 million shares to 9 million. Kerkorian’s $75 million commitment is to cover the shortfall resulting from the reduction.
Offering a success
MGM had been hoping that cutting the size of the offering would yield a higher price for the stock that was sold. But the studio can still count the offering as a success, given that it was priced at the end of a trading day that saw the Dow Jones Industrial Average dive 157.41 points to 7401.32.
Indeed MGM marketed its offering during a period of intense volatility, kicking off its “roadshow” tour of institutional investors two weeks ago on the day the Dow plummeted 554 points. At the time, there had been speculation that the offering might be delayed if the volatility continued, and there had been talk among Wall Streeters Wednesday that the pricing could be put back a day or two because of the market drop.
“People get uncomfortable putting new money into a new stock in this kind of environment,” said one analyst.
MGM, in particular, encountered skepticism from some investors who were wary of movie production companies in general. The Lion has stressed to investors that its prospects rest more on the earnings from its film library than film releases.
As it turned out Wednesday, neither the studio nor its underwriters — led by Merrill Lynch — gave any thought to delaying the pricing, which went ahead on schedule at about 5 p.m.
Pricing of stock offerings is negotiated between the underwriters and company management, with the underwriters usually pushing for a lower price to ensure investors feel good about the deal while management usually wants a higher price. People close to the MGM deal said it made sense to price the stock a little lower to ensure investors don’t walk away feeling “like every last penny was wrung out of them.”
MGM, restricted by securities regulations from talking about the offering, confirmed the price of the offering but declined to comment further.