Switch may dull budget ax
NEW YORK — Metro-Goldwyn-Mayer’s majority shareholder, Kirk Kerkorian, has decided to double the size of a cash infusion he was to make to the Lion to $500 million, allowing reversal of some budget cuts announced 10 days ago.
The decision doesn’t mean Kerkorian has given up efforts to sell at least an interest in MGM to an outside studio like News Corp.’s 20th Century Fox or Walt Disney Co., sources said. Due diligence by News Corp. and Walt Disney Co. is said to be continuing, although chances of a deal getting done remain bleak.
But the extra cash, expected to be injected through an increase in a previously announced stock rights offering, will allow MGM to reverse budget cuts such as the freeze on TV development imposed Aug. 5 because of a looming cash crunch, sources said. MGM declined comment.
Feature films will also benefit from the extra cash, as the Lion had said it would reduce its release schedule by one or two pics a year.
People close to the situation said Friday that MGM chairman Frank Mancuso had persuaded Kerkorian that cuts, particularly in television, would hurt the company’s long-term prospects.
“We were cutting off our nose to spite our face,” said one MGM source.
Kerkorian had pushed Mancuso to make the cuts after apparently becoming frustrated with MGM’s insatiable need for cash. Not only did Kerkorian help finance last year’s acquisition of Orion Pictures, he supplemented the cash raised in MGM’s initial public offering last November and has since bought more stock to try and support the price.
Still, losses on pics like “Species 2” and “Dirty Work” and a heavier block of orders than expected for TV series threatened MGM’s cash reserves and prompted the $250 million stock offering, which apparently was the final straw for the 82-year-old mogul.
Sources said there was heavy lobbying internally to reverse the freeze on TV development, as well as a negative reaction from the creative community. MGM’s film side is already in the position of finding it difficult to attract top-notch talent.
Mancuso likely pointed to the success MGM is enjoying in television, highlighted by the number of new orders it has received and a quarterly profit on TV of $4.5 million which compared with a loss from film of $14.9 million in the same period.
It has 10 series ordered for the fall season including CBS’ “The Magnificent Seven” and three series for Showtime, “Stargate SG-1,” “The Outer Limits” and “Dead Man’s Gun.”
People close to the studio said, however, that Kerkorian is not a fan of the television business and believes MGM’s long-term success rests on its film side. Consequently, sources said more of the new cash will be earmarked for film and to pare down debt.
One MGM source countered the idea that TV will get short shrift.
“TV is certainly the working side of our business, and it’s going to be a large focus,” the insider said. “There may be an analysis of what projects to make, but we still have to develop new properties. We’re just not prone to do network series because of the huge deficit funding. Our model is to lower risk.”
Precise details of how the new money will be raised have not been decided, according to insiders. MGM’s finance execs have been meeting with bankers to consider various options, although some observers believe the rights offering may simply be doubled in size, but a board meeting is scheduled for early this week to make a decision.
Kerkorian has committed to fund at least 90% of the rights offering, taking up both his own rights (he owns 65%) and those of 25% shareholder Seven Network, which said it won’t take up its rights at the moment.
Kerkorian had agreed to underwrite the rest of the offering if public shareholders did not take up their rights. That means he will personally put in at least $450 million and possibly more of the $500 million to be raised.
Given MGM’s weak stock price, Kerkorian may have to put all the money in. The stock has hit new lows in recent days, as expectations that the company was about to be sold dissipated.
The stock closed down 18¢ to $15.18 Friday, roughly 37% below Kerkorian’s entry price.
The weakness in the stock price highlights the difficulty Kerkorian will have in bringing in an outside partner, industry execs said. Those involved in discussions with MGM said Kerkorian and Seven will have to realize losses on their investment if they are to do a deal.
(Jenny Hontz in Los Angeles contributed to this story.)