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Prowling for Lion payout

Kerkorian stands to gain $1.57 bil from move

MGM is about two weeks away from executing its plan to reward its shareholders with a big stock dividend, now planning a payout of $8-$9 per share as part of a $2.4 billion refinancing.

There’s been a range of speculation over reasons for the move — which will enrich majority owner Kirk Kerkorian by as much as $1.57 billion — but one clear result will be that Kerkorian will recoup some serious coin from his estimated $3 billion in MGM investments.

Lion plans to refinance its current credit facility in the process, using studio’s longtime bankers JPMorgan and Bank of America. But $2 billion of the total refi is earmarked for the shareholder dividend.

Kerkorian holds a 74% stake in the Century City-based studio, which has 235.4 million shares outstanding. As a result, even an $8 dividend would give the reclusive octogenarian a $1.39 billion bonanza.

Kerkorian backed a management-led takeover of MGM in 1996 following his two previous episodes of Lion ownership in earlier decades. His trusted chairman and CEO, Alex Yemenidjian — topper at Kerkorian’s MGM Mirage prior to his 1999 appointment to succeed Lion-keeper Frank Mancuso — has persistently beaten the bushes for prospective merger partners to broaden studio’s distribution reach.

But those efforts have proved to be mostly futile, and no major merger appears possible at present. That’s prompted Kerkorian to seek the MGM dividend as a means of reaping some benefit from his investment in the meantime.

Some have suggested the pricey MGM dividend reps the first step in a Kerkorian plan to take the company private, with his hefty payout helping to fund the scheme. But others downplay the likelihood of such an outcome and alternately suggest Kerkorian may simply use the cash to pay down debt at his Tracinda holding company.

In any event, the likely outcome for the present could be a nice run-up in MGM’s share price as investors line up to qualify for the dividend. But even studio insiders acknowledge the situation is also likely one in which what goes up must come down once the dividend is paid.

MGM shares fell 11¢ to $17.25 on Monday. Shares have traded mostly just above or below $17 in recent sessions, after briefly spiking north of $18 when the Lion first signaled its dividend plan.

On March 15, MGM announced it was “considering various alternatives designed to distribute more of the company’s wealth to shareholders.” But from the start it was clear the move — then expected to take the form of a dividend upward of $6 a share — would necessitate the Lion’s taking on substantial debt.

MGM is effectively debt-free, but $2 billion of the new $2.4 billion financing would come in the form of long-term debt. MGM execs are confident, however, that they can quickly pay down the new debt from operating cash flow generated over the next two years.

The balance of the financing involves a revolving credit facility to fund production and other operations. That’s a reduction from the Lion’s current $600 million facility, which itself was reduced from a previous $1.75 million facility and has gone largely untapped since the studio shifted to a lower-risk approach to moviemaking.

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