Sony jumps on MGM after Time Warner drops bid; Group tentatively agrees to fork over nearly $3B

Mon, 09/13/2004 - 8:00pm
Michael McCarthy

Copyright 2004 Gannett Co. Inc.


September 14, 2004, Tuesday, FIRST EDITION

A Sony-led group has a deal in principle to buy Metro-Goldwyn-Mayer for about $2.94 billion in cash and $1.95 billion in assumed debt, MGM announced Monday evening.

Sony struck the tentative deal Monday after Time Warner dropped out of the bidding for the movie studio.

Sony's group is poised to win the months-long auction with a bid that amounts to about $12 a share. The group includes private equity firms Providence Equity Partners, Texas Pacific Group and DLJ Merchant Banking Partners. Comcast, the largest U.S. cable operator, is also considering an investment.

The deal would become the third time in the past 25 years that billionaire investor Kirk Kerkorian has bought and sold MGM. He currently holds a 74 percent controlling stake in the studio.

The crown jewel for Sony would be MGM's library of more than 4,000 films, including the James Bond, Rocky and Pink Panther franchises.

Sony, which has owned the Columbia studio since 1989, is looking to profit from the library through DVD sales, cable's video on demand and fodder for existing or new cable networks.

Time Warner looked to be in the driver's seat late last week, after it switched its stock offer to a clean, all-cash bid of about $11 per share. But Sony and its partners countered this weekend by raising their more complicated all-cash bid from $11.25 to about $12.

The Sony consortium solidified its position Monday with a non-refundable deposit of $150 million, MGM said. If the deal falls apart, MGM keeps the fee.

MGM management is expected to recommend the deal to its board by Sept. 27.

Time Warner CEO Richard Parsons said in a statement that his company dropped out because it could not agree on "a price that would have represented a prudent use of our growing financial capacity." The world's largest media company is eyeing other acquisitions, such as troubled cable operator Adelphia Communications.

"Parsons has stated on more than one occasion that he's a disciplined buyer of assets," says analyst David Miller of Sanders Morris Harris in Los Angeles. "Clearly, he didn't want to go as high as $12 per share."

Analyst Dave Mantell of Loop Capital Markets in Chicago questions how valuable MGM's library can be for Sony. Though the vault includes 15 Best Picture Oscar winners, such as Annie Hall, West Side Story and Platoon, consumers have seen the films over and over again, he says. "These movies have been seen around the world."

Wall Street reacted more positively. MGM's shares rose 44 cents to $11.55. Sony gained 53 cents to $35.82. Time Warner dropped 6 cents to $16.45.


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