MGM studio to be acquired by Sony group

Gary Gentile

Tuesday, Sept. 14, 2004 | 9:17 a.m.

LOS ANGELES -- A consortium led by Sony has agreed in principle to acquire famed Hollywood studio Metro-Goldwyn-Mayer for nearly $3 billion, MGM said late Monday.

The deal marks the last chapter in the history of two of Hollywood's most storied names -- MGM, once best known for its musical hits such as "Singing in the Rain" and "Meet Me in St. Louis"; and its subsidiary, United Artists, the studio founded in 1919 by Charlie Chaplin, Mary Pickford, Douglas Fairbanks and D.W. Griffith.

The agreement is a coup for Sony, which as late as Sunday was considered the underdog in the bidding to Time Warner, which dropped its offer Monday.

Acquiring MGM's vast library of more than 4,100 films boosts the content Sony can now offer on DVD and on portable devices, many of which Sony makes. Sony also announced in a statement that it has reached a distribution deal with Comcast, the nation's largest cable provider, that would allow video on demand and new cable channels featuring Sony and MGM content.

MGM bought United Artists in 1981 and has used the brand in recent years as a boutique studio, releasing low-budget, independent films.

MGM said it received a cash deposit of $150 million on Monday from Sony, along with several private equity companies.

MGM said its management will recommend the deal, which it called a "proposed merger," to its board by Sept. 27. The sale is also subject to regulatory approval.

Sony has agreed to pay $12 a share for MGM, or about $2.94 billion cash -- a 4 percent premium over MGM's closing price of $11.55 Monday on the New York Stock Exchange. The deal also calls for Sony to assume about $1.9 billion in MGM debt.

MGM shares rose 3.9 percent, or 44 cents, on speculation of a pending deal, and then gained another 5 cents in extended trading. Sony shares showed much less movement, gaining 53 cents to close at $35.82.

The sale would mark the third time billionaire investor Kirk Kerkorian has sold the film studio. Through his Tracinda Group, Kerkorian owns 74 percent of MGM's outstanding shares and the sale to Sony would net him about $2.1 billion.

MGM paid a special one-time dividend of $8 a share in May, saying it was the best way to return value to shareholders. That transaction paid Kerkorian about $1.4 billion.

For the past two years, MGM has been hunting for ways to grow larger, either through acquisitions or mergers.

The company made an $11.5 billion bid for Vivendi Universal Entertainment last year, but lost that contest to NBC.

Sony is expected to shutter MGM's current production, with the possible exception of the "James Bond" franchises.

But MGM has a considerable library of more than 4,100 titles, including the "Pink Panther" and "Rocky" franchises. Analysts have estimated MGM's library will generate $440 million in 2004 by exploiting only about a third of its titles on the newer DVD format.

Time Warner had been seen as the front-runner for MGM going into the weekend. But Sony raised its offer, setting off a bidding war that Time Warner concluded it didn't want to engage in.

"As we pledged to our shareholders, we approach every potential acquisition with strict financial discipline," Time Warner Chairman and Chief Executive Dick Parsons said. "Unfortunately, Time Warner could not reach agreement with MGM at a price that would have represented a prudent use of our growing financial capacity."

Parsons, who has often said Time Warner is interested in expanding its presence in cable television, hinted Monday that the cash it saved from the MGM bid could be used to bolster its cable presence.

"We are confident that there are other capital allocation choices that will enable us to continue to build shareholder value," he said.

Time Warner is known to be interested in bidding on the cable assets of bankrupt Adelphia Communications.

Comcast is considering becoming a minority equity investor in the proposed MGM buyout, Sony officials said in a statement.

The deal also includes Sony and Comcast developing new movie cable channels featuring Sony and MGM films. Comcast and Sony would pursue a video on demand service even if the MGM deal falls through, Sony officials said.

A Comcast spokeswoman declined to comment.