Lion licking its wounds

Stock drops 10% on new share offer

MGM’s stock price sank 10% Thursday after the Lion offered 10.5 million new shares to raise $174.1 million for debt reduction, operating capital and possible acquisitions.

Studio offered its new shares at a 9% discount to the previous day’s closing price of $18.16, so sesh’s stock tumble was like night following day. MGM shares fell $1.73 to close at $16.43, 7¢ below the price of the offered shares.

Prior to the offering, billionaire financier Kirk Kerkorian held about 195 million of MGM’s 242 million shares outstanding, an almost 82% stake. Completing the offering and a related underwriter’s overallotment would dilute that position to 77%.

Lion spokesman Joseph Fitzgerald said the offering was discounted to attract new institutional interest in the stock, while also increasing the Santa Monica-based company’s relatively small public flotation.

Goldman Sachs led the offering, which is expected to close Monday and takes advantage of a previously filed shelf registration. The underwriter was granted an option to purchase an additional 1.6 million shares for a similar price, which would raise $26.1 million more for the Lion and bring total proceeds to $200.2 million minus fees.

Red rolling up

Lion debt, which totaled almost $850 million at the beginning of 2002, has been expected to swell to $1 billion by year’s end. “This gives us some latitude,” Fitzgerald said.

On the acquisition front, the studio long has been seeking a bigger stake in four Rainbow Media cable channels, in which the Lion holds a 20% interest.

Various other mergers or acquisitions also have been mulled in the past several months, though there’s no clear sign of any imminent deal. Wall Street was abuzz Thursday with talk of a possible takeover of TV broadcaster Paxson Communications — a company MGM chairman-CEO Alex Yemenidjian has said offers a good strategic fit.

“We think there’s a very good chance MGM could make an acquisition, and it would really take their vertical integration process to another level if they could take over Paxson,” Sanders Morris Harris analyst David Miller said. “But all of the major media groups are looking at the possibility of taking over Paxson, and we think Disney has the most to gain.”

MGM shares briefly spiked earlier this year amid talk of an imminent major merger or sale involving the studio. But the surge was short-lived, and even before the latest downturn the stock had slid17% overall this year.

Additional undewriters of the offering included Banc of America Securities, Robertson Stephens, Gerard Klauer Mattison, J.P. Morgan Securities, Scotia Capital, Salomon Smith Barney and UBS Warburg.

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