87-year-old Kirk Kerkorianis poised to sell Metro-Goldwyn-Mayer for the third time in his see-sawinghistory as a studio proprietor after agreeing "in principle" to a $4.84bntakeover bid from a consortium led by Sony. The MGM board will meet to sanctionthe deal tomorrow (Tuesday).
By raising its bid overthe weekend to $12 per MGM share (plus the assumption of $1.9bn of debt), Sonyeffectively trumped a rival offer of $11 a share from Time Warner. In addition,Sony and its partners have paid a $150m deposit that will MGM will keep even ifthe deal founders.
Sony's financing partnersinclude private equity firms Texas Pacific Group and Providence EquityPartners, as well as the investment arm of Credit Suisse First Boston. Butcrucial to the deal was the last minute addition of Comcast Corp, the world'smightiest cable operator that earlier this year failed in its own takeover bidfor Walt Disney.
Comcast is not injectingany money now although it does have the option of becoming a minority equityinvestor at a later date. However, a commitment from Comcast to draw on MGM andSony titles in order to create new premium movie channels and VOD services apparentlygave the Sony the confidence to increase its offer to Kerkorian.
According to a report in the New York Times, the precise financial terms among the partners are still being negotiated. The current scenario envisages Providence providing the lion's share of the cash investment, some $450m. Sony and Texas Pacific would invest about $300m apiece, as will Comcast should the deal is completed. DLJ Merchant Banking Partners, a unit of Credit Suisse First Boston, will pitch in with about $250m.
J. P. Morgan Chase will finance the deal with a $4bn loan. Quadrangle Partners has also reportedly been invited to become investor, but has yet to make a commitment.
Other than continuing theJames Bond franchise - which will presumably now be distributed worldwide through Sony Pictures - MGM is expected to stop producing major theatrical moviesunder its new owners, and become instead a brand-label for networks and distributed content.
Sony can be expected to draw on its new well of MGM classics in order to help propel demand for Blu-ray, a new generation DVD format that Sony is pushing alongside twelve computer and consumer electronics firms. A competing format is being promoted by rival hardware giants Toshiba and NEC Corp.
Less clear at this stage is the eventual fate of United Artists, a MGM division that wasturned into a specialist division in recent years. Ever since May, when Sony first officially acknowledged its interest in MGM, there has been industry speculation that a UA buyout might be attempted.
MGM's chief lure for bothSony and Time Warner is clearly its 4,000-film library, whose value hasrocketed to beyond $3.8bn with the explosion in DVD sales and the arrival ofnew digital delivery systems around the globe.
But even in this era ofconstant repackaging and re-formatting, $4.84bn proved too rich for TimeWarner's blood - even without the added aggravation of trying to get regulatoryblessing for a deal that would have combined MGM's library with Warner Bros' own vastreservoir of back-catalogue movies and TV shows.
Explaining why TimeWarner had dropped out of the bidding, its chairman and CEO Dick Parson said: "As we pledged to our shareholders, we approach every potential acquisitionwith strict financial discipline. Unfortunately, Time Warner could not reachagreement with MGM at a price that would have represented a prudent use of ourgrowing financial capacity."
Instead, Time Warner isnow expected to switch its attentions to buying some or all of AdelphiaCommunications in the pending auction for that now-bankrupt US cable operator.