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Kirk’s 80% solution

Four banks will market MGM's new stock offering

NEW YORK — Metro-Goldwyn-Mayer has retained four investment banks to help market its $500 million stock offering with the hope that new investors will buy into the stock and reduce majority shareholder Kirk Kerkorian’s stake in the Lion.

JP Morgan, Merrill Lynch, Bear Stearns and Furman Selz have been hired to help market the deal. The four banks underwrote last November’s initial public offering, but the latest offering is being underwritten by Kerkorian’s private company, Tracinda.

That means Kerkorian is guaranteeing to take up any stock not bought by the public, which could theoretically lift his stake past the 90% level it will hit after he completes the buyout of Seven Network’s 25% stake Sept. 1 (Daily Variety, Aug. 20).

Sources said Monday Kerkorian doesn’t want to stay at 90% but would rather reduce his position, preferably below 80%, to ensure Tracinda does not have to consolidate MGM for tax purposes — which is a requirement at the 80% ownership level.

Fresh investors

Bringing in fresh investors would have the additional benefit of improving the trading liquidity of MGM’s stock, reducing volatility in the price, Wall Streeters said.

Opinion was divided Monday about MGM’s chances in the offering. Wall Streeters said the drop in MGM’s stock price from the initial public offering level of $21 should make the deal easier to market than the IPO, which was eventually reduced in size in the face of weak demand.

MGM stock has traded as low as $14 since November. It did rally strongly in the past week, after MGM announced the $500 million offering and Kerkorian agreed to buy out Seven at its original investment price of $24 a share. MGM closed Monday up 37¢ to $19.37.

Not cheap

“It’s cheaper but it’s not cheap,” said one Wall Streeter Monday. “It won’t be easy (to sell).”

After all, the Wall Streeter added, MGM has just gone through a very public liquidity crisis which prompted the offering in the first place. The Lion announced the offering, at an initial size of $250 million in late July, along with budget cuts but increased the size of the deal to $500 million last week.

Not even the investment banks advising the Lion on the offering are unanimously recommending the stock.

‘Neutral’ rating

Merrill Lynch downgraded MGM stock to a “neutral” in late June, citing its worries about the studio’s slowness in arranging distribution partners, while Bear Stearns put the stock on a “neutral” rating after the IPO last year.

None of the Wall Street firms can comment on their current ratings because of securities regulations governing public offerings. Both MGM and Tracinda declined comment.

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