Conglom rounds up partners to kick tires at MGM

Sony is courting MGM — again.

Coming on hot and heavy in a new round of talks, the conglom has joined forces with two financial players, Texas Pacific Group and Providence Equity Partners, in a sweet bid of about $5 billion, or just over $21 a share.

Reports of the talks buoyed MGM stock, which rose nearly 12% Wednesday to close at $19.75.

Wall Streeters cautioned it would be premature to assume a deal will get done, as the Lion has been stalked to no end in the past.

MGM has held talks with several Hollywood studios, including a near-deal with Sony in 2001. That proposed merger-of-equals ultimately collapsed, with some citing a lack of support for the initiative by Sony Corp. of America’s bosses back in Tokyo.

Several months ago, MGM quietly floated its own proposal to buy Sony Pictures, according to a well-placed source. But that cash offer — proffered after the Lion bolted the Vivendi Universal Entertainment auction — was quickly rebuffed by Sony.

MGM also has held preliminary talks about a possible merger with Warner Bros. in the past year. The bait: MGM’s massive film library.

In all of the situations, discussions ultimately bogged down over details, usually involving company valuations or price.

A Sony insider portrayed the latest reports as an attempt by MGM’s 74% owner Kirk Kerkorian to flog the stock. But the participation of two buyout firms would tend to indicate some level of seriousness in the talks.

Interestingly, Providence Equity was hired by MGM in its unsuccessful bid for VUE, so the firm should be well informed about the assets Sony has targeted. Among them, cash flow from the library could be used to pay down any debt amassed in a takeover.

Sony is particularly keen on library exploitation these days, as its hardware-side operations have been gearing up to roll out Blu-ray, one of two competing high-definition DVD formats in the works. Studio recently announced its Columbia unit would start issuing all new releases in Blu-ray by 2006, so buying MGM would give Sony more product for that important initiative.

Sony’s price for MGM is said to include the assumption of imminent Lion debt — about $2 billion to pay a special $8 per share dividend later this year (Daily Variety, April 7).

Studio reiterated Wednesday that those dividend plans remain in place, with directors expected to vote on the plan after a refinancing of the studio’s credit facility is completed next week. Kerkorian is expected to reap a $1.39 billion windfall when the dividend is executed.

MGM is not believed to be in serious talks right now with any other companies, although news of the Sony situation might encourage rival bidders to step up. Studios and other entertainment players have long salivated over the company’s formidable library.

Sony shares slid 28¢ to close at $41.95 on Wednesday.

(Paul Sweeting in Washington and Nicole LaPorte in Hollywood contributed to this report.)

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