Buyout by MGM lifts Oz net's stock price
Seven Network’s stock price jumped 20% Thursday in the wake of the Australian broadcaster’s sale of its 25% stake in Metro-Goldwyn-Mayer for $389 million, a price in line with Seven’s original purchase cost.
Seven stock closed up 85¢ to $A5.07 (U.S. $2.98) a share in trading on the Australian stock market as investors applauded the MGM sale. The Oz net had been under pressure from the stock market to get out of MGM in recent months, as the value of the company’s stake in MGM deteriorated with MGM’s declining stock price.
Remarkably, Seven managed to get out of the stock without losing any money. Kirk Kerkorian, MGM’s majority shareholder, agreed to buy Seven out at the $24 a share purchase price in a decision that baffled observers in both the U.S. and Australia.
People close to the situation speculated that Kerkorian may have wanted to make clear his belief in the value of MGM, whose stock has lately traded as low as $14 although it has rallied since news broke last Friday that Kerkorian would contribute more equity.
Indeed MGM stock, which closed up 87¢ Thursday to $19.87, is up 25% in the past week. “It’s changed from a story of ‘let’s throw in the towel’ to ‘let’s get behind this,’ ” said one analyst, who did not want to be identified.
Budget cuts, like a freeze on television development announced earlier this month, have been reversed as a result of Kerkorian’s willingness to double to $500 million a new equity infusion, being done in the form of a stock “rights” offering. Kerkorian, who will own 90% of MGM after the Seven purchase closes Sept. 1, will underwrite the offering.
The analyst said the infusion of new equity and its implications for the business was probably part of the reason for the stock surge, along with Kerkorian’s evident belief that MGM’s stock price was too cheap.
Meanwhile, Seven’s sale does not end MGM’s relationship with the Oz broadcaster, which signed a 20-year output deal with the Lion last year. Seven chairman Kerry Stokes said in a statement Wednesday that “we will of course continue our relationship with MGM through our existing output agreement.”
There are also suggestions that MGM and Seven may explore a pay television co-venture in Australia, although both are already minority partners in the television distribution venture MovieVision.
Seven used the money raised from the sale to repay debt, reducing its borrowings to about $117.46 million. The broadcaster had borrowed money to invest in MGM in the first place.