Sony, Group Agree to Buy MGM for $5 Bln, Person Says

Sept. 13 (Bloomberg) — Sony Corp., the world’s second- largest
consumer-electronics maker, and a group of investors agreed to buy
Metro-Goldwyn-Mayer Inc. from billionaire Kirk Kerkorian for about $5
billion including debt, according to a person familiar with the matter.

The Sony-led group, which includes private equity firms Texas Pacific
Group and Providence Equity Partners, may include other investors,
the person said. The group will pay about $12 per share, the person
said. Comcast Corp., the world’s biggest cable- television operator,
may invest $300 million in MGM after the purchase, said two people
familiar with the matter.

Sony became the only remaining bidder after Time Warner Inc.,
the world’s largest media company, said in a statement that it was
withdrawing its offer. The purchase will double the size of Tokyo-
based Sony’s film library to about 8,000, adding MGM titles including
the James Bond and Pink Panther series, and help Sony boost digital
video disc sales.

“The combo would be good. It’s the library they want,” David Miller,
a media and entertainment analyst at Sanders Morris Harris in Los
Angeles, said of Sony. “The more films you have, the more you can
keep costs low.” Miller rates MGM as “hold” and made his comment
before the agreement.

Not `Prudent’

Sony spokeswoman Ann Morfogen didn’t return calls for comment. Janet
Janjigian, a spokeswoman for MGM, declined to comment. Owen
Blicksilver, a spokesman for Texas Pacific, and Providence Equity
spokesman Andrew Cole at the public relations firm Citigate Sard
Verbinnen, couldn’t be reached for comment.

Sony already owns Sony Pictures Entertainment, the parent of Columbia
Pictures and TriStar Pictures. The MGM library includes such Academy
Award winners as “Ben Hur” and “Midnight Cowboy” as well as 10,000
hours of TV programming.

Time Warner Chief Executive Officer Richard Parsons, 56, said today
the company quit the bid because it couldn’t come to terms on a
“price that would have represented a prudent use of our growing
financial capacity.”

“It’s an important milestone that they are showing financial
discipline,” said Angela Kohler, a media analyst with Pittsburgh-
based Federated Investors Inc., of Time Warner’s decision. “MGM was
incremental to growth, but it wasn’t a crucial acquisition.”

Federated owns 2.8 million shares of New York-based Time Warner among
its $27 billion in assets.

Separately, Philadelphia-based Comcast has reached an agreement with
Sony for movies and shows that can be used in Comcast’s video-on-demand
service, and for the creation of new TV channels, said the people
familiar, who asked not to be named.

Kerkorian

The Sony group’s offer equates to around $2.94 billion plus the
assumption of around $1.9 billion in debt, the Wall Street Journal
reported today, citing people familiar with the matter.

The transaction would be the third time Kerkorian, who owns 74 percent
of MGM and tried unsuccessfully to merge it with Sony in 2001, has
sold the studio.

Parsons told Bloomberg News in May that the company is interested
in making acquisitions at the right price and didn’t feel under
pressure to complete any deals. Parsons said at the time he would
consider buying some assets of bankrupt cable-TV operator Adelphia
Communications Corp.

As of Aug. 5, Time Warner’s cash and equivalents totaled $6.2 billion,
the company said in a filing with the U.S. Securities and Exchange
Commission. The company’s net debt totaled $18.1 billion on June 30.

Stock Offer

Time Warner earlier offered Kerkorian stock for MGM, the Journal
reported on Sept. 1, citing people familiar with the offer.

Time Warner, whose Warner Bros. film library has 6,660 titles, was
vying for MGM to be able to sell MGM’s films through its existing
home-video distribution system more efficiently than rival studios.

The decision to pass on MGM proves Time Warner will be a “prudent
and disciplined investor as it evaluates acquisition opportunities,”
said Spencer Wang, analyst with JPMorgan Securities Inc. in New York,
in a research note. He rates the shares “overweight.”

Home-video sales, including DVDs and VHS cassettes, probably will
account for about $5 billion to $5.5 billion in revenue for Time
Warner this year, said Paul Kim, an analyst with New York- based
Tradition Asiel Securities Inc., who rates Time Warner shares “hold”
and doesn’t own them.

U.S. consumers will spend $14.8 billion to buy DVDs this year,
according to Adams Media Research of Carmel, California. That’s
expected to rise to $20.6 billion by 2007. This year’s projected box
office total is $9.6 billion, Adams said.

Multiple Sales

Kerkorian, the president and chief executive of closely held Las
Vegas-based Tracinda Corp., is ranked as the 65th wealthiest person
with $6 billion in net worth, according to Forbes magazine.

The son of an Armenian immigrant rancher in California’s San Joaquin
Valley, Kerkorian first bought the MGM film studio in 1970. Under
Kerkorian, the company built the MGM Grand Hotel in Las Vegas in
1973. The casino unit was spun off into a separate company in 1980.

Kerkorian sold the studio to Ted Turner in 1986 and then bought it
back, leaving the pre-1948 library with Turner, who used it to create
movie-oriented cable networks such as Turner Classic Movies.

Kerkorian later sold the part of MGM he retained to Italian financier
Giancarlo Parretti, who lost it to the French bank Credit Lyonnais
after defaulting on loans used to buy the studio.

Texas Pacific, Providence

With veteran studio executive Frank Mancuso, Kerkorian bought MGM a
third time in 1996 for $1.3 billion in cash.

Texas Pacific, started in 1993 by David Bonderman, a former adviser
to the billionaire Bass family of Texas, last year raised a $5.3
billion takeover fund, TPG Partners IV LP.

The firm has a history of investing in brand names in need of
resuscitation, including Continental Airlines Inc. and fast- food
chain Burger King Corp.

Providence Equity, named for the Rhode Island city where it is based,
invests in communications and media companies and was started in
1991. The firm is currently investing its $2.8 billion Providence
Equity Partners IV.

A Sony-MGM transaction would represent the third multibillion- dollar
purchase of a media company in the past year.

Rupert Murdoch’s News Corp. paid $6.6 billion in December for a
controlling interest in DirecTV Group Inc., the largest U.S. satellite
television service.

General Electric

General Electric Co.’s NBC unit in May completed its $14 billion
purchase of Vivendi Universal SA’s U.S. media assets, creating NBC
Universal. Comcast in February made an unsolicited offer to buy Walt
Disney Co. for $54.1 billion. The offer was later withdrawn.

JPMorgan Chase & Co. advised the Sony group on MGM.

Time Warner shares fell 6 cents to $16.45 at 4:54 p.m. in New York
Stock Exchange composite trading. The shares have fallen 8.6 percent
this year. MGM shares rose 44 cents to $11.55 and have risen 12
percent this year.

Sony’s American depositary receipts, each representing one common
share, rose 53 cents to $35.82 and are up 3.3 percent this year.

To contact the reporter on this story: Dan Lonkevich in New
York dlonkevich@bloomberg.net. Chitra Somayaji in New York at
csomayaji@bloomberg.net.

To contact the editor responsible for this story: Alan Mirabella at
amirabella@bloomberg.net.