Bond movie studio MGM calls off merger talks with Time Warner

14-Jan-2004 • Bond News

Metro-Goldwyn-Mayer and Time Warner have abandoned talks to merge the legendary movie studio into the world`s biggest media company.

MGM had been in early-stage talks with media giant Time Warner about a potential sale of the last remaining independent major film studio, which is controlled by billionaire investor Kirk Kerkorian.

But those discussions broke down a few days ago after the parties could not agree on price and structure, sources close to the discussions said.

"Time Warner thought it was an interesting asset and would be a nice fit," one source noted. "But MGM wanted a stock deal, and Time Warner thought that using its stock at the current levels to make an acquisition was too expensive."

A Time Warner spokesman and an MGM spokeswoman declined to comment.

For years, Kirk Kerkorian has made it clear that any buyout offer would have to be above $20 a share, or about $5 billion. However, in the Time Warner talks, he was willing to flip the Lion for under $20 a share, sources said.

Shares of Los Angeles-based MGM closed yesterday at $17.29, down 10 cents, on the New York Stock Exchange.

MGM`s stock price implies the studio has a market capitalization of about $4.2 billion. But the stock price may be inflated by the ongoing tender offer by MGM, which is offering to buy back 10 million shares for up to $18 a share.

The stock price isn`t an indication of the company`s true value because of the ongoing tender process, say investment bankers, who value the company closer to $15 a share.

MGM has long been rumored as a desirable takeover candidate - at the right price - for most of the major entertainment companies.

That`s mainly because of its prized library of more than 4,000 feature film titles - including the "Pink Panther," "Rocky" and "James Bond" series - and more than 10,000 TV episodes.

Industry analysts estimate the library generates more than $300 million in annual cash flow for MGM.

MGM`s library would be a logical fit for Time Warner, which has held conversations with the studio in the past.

Acquiring MGM would have enabled Time Warner to increase the size of its Warner Bros. library by adding Hollywood`s largest and most modern stable of titles.

It also could have achieved hundreds of millions in cost savings by closing MGM`s new production business.