Bidders vie for $5bn MGM studio
By Peter Thal Larsen and James Politi in New York
Financial Times
Jul 02, 2004
Shares in MGM rose yesterday amid hopes that a bidding war is about to
break out for the last independent Hollywood studio.
Time Warner has made a preliminary offer for Metro-Goldwyn-Mayer which
values the studio at slightly less than a $5bn cash and debt bid from
Sony, people familiar with the talks said.
However, Time Warner’s bid could prove more attractive because it
involves paying Kirk Kerkorian, the billionaire investor who has a
controlling stake in MGM, in shares rather than cash.
Time Warner has examined a purchase of MGM several times in the
past. A deal is also considered less of a priority for Time Warner
than for Sony, which needs to bulk up its film library.
MGM told investors at its annual meeting on Tuesday that it was still
considering multiple options for its future.
“As it turned out, we have more strategic alternatives available to us
than we realised,” said Alex Yemenidjian, chief executive.
Talks are expected to continue for the next few weeks, and no
announcement is imminent. MGM shares closed up 56 cents at $12.66.
While Sony is seen as the more motivated buyer, Time Warner has a
close knowledge of the studio.
People close to the negotiations said it may also be interested
because MGM has the rights to distribute any film based on The Hobbit,
the book by JR R Tolkien which preceded the Lord of the Rings trilogy.
Time Warner’s New Line Cinema subsidiary released the Lord of the
Rings films, which have taken almost $3bn at the box office
worldwide. It also has the rights to make a movie version of The
Hobbit, but would have to come to an agreement with MGM before it
could be released. Given the huge success of Lord of the Rings, those
distribution rights could be worth hundreds of millions of dollars.
That said, there are no current plans to make the film as Peter
Jackson, the Oscar-winning director of the Lord of the Rings series
who would be the most likely to lead the production, is currently
working on a version of King Kong.
Time Warner’s offer, which is non-binding and subject to due
diligence, envisages paying MGM’s public shareholders around $13 per
share in cash – similar to Sony’s proposal.
However, Mr Kerkorian would then receive Time Warner shares in
exchange for his MGM stock at a lower valuation.