Sony agree MGM takeover valuation at $5 billion, but deadline for studio, catalogue and James Bond buy-out talks looms

27-May-2004 • Bond News

With a Thursday deadline looming, Sony Corp.'s exclusive talks about a possible takeover of Metro-Goldwyn-Mayer Inc. look set to come down to the wire, sources said Tuesday, reports Reuters.

In fact, some people familiar with the situation said Sony could well fail to work out details of a takeover by the deadline. They emphasized, however, that this wouldn't automatically mean that a Sony-MGM transaction can't come about with some delay. Under the existing framework, Sony has 15 business days to finalize a deal.

MGM and Sony officials declined comment Tuesday on the status of the talks.

However, two sources familiar with the process said that Sony's main challenge has been reaching an agreement with its two private equity partners about the size of their respective investments as well as details of future exit options for the private equity investors.

Sony's investment partners are Texas Pacific Group and Providence Equity Partners. Wall Street experts said such private equity firms tend to have a shorter investment horizon than sector players, which often makes the structuring of joint acquisitions a complex process.

At least two sources said that MGM and Sony were still in agreement on the valuation of a possible takeover despite a report Tuesday in Japanese newspaper Nihon Keizai Shimbun that had some industry observers assuming a price disagreement.

According to translations from news wires, Sony chairman Nobuyuki Idei told the newspaper that the price of an MGM acquisition may not be as high for Sony as some believe.

However, sources said that Sony hasn't actively pushed for a lower price tag for MGM. Instead, Idei may have simply wanted to signal that he hopes his private equity partners will pick up their part of the tab in a possible deal, they suggested.

Sources have said before that Sony and MGM have agreed on a basic valuation of a takeover of about $5 billion. One source said Tuesday that this understanding has been in place since the two sides decided to enter an exclusivity period.

Sony has used the period to take a detailed look at MGM's financial books and do due diligence.

If the deadline comes and goes without a transaction in place, some observers suggested that MGM could extend the exclusivity period, at least until the end of the upcoming Memorial Day holiday weekend. But others said MGM management could open up the bidding and due diligence process to other possible suitors to avoid delays in the sales process.

This could put Sony in competition with Time Warner and General Electric's recently formed NBC Universal, industry observers suggested. While spokeswomen for those two companies declined comment, NBC Universal sources suggested that their executives are fully focused on making their recent merger work rather than on making more deals.

And Time Warner still has an interest in MGM -- given that it would make a good fit for the entertainment conglomerate -- but only at a lower price tag than the one Sony and MGM are working with, sources said.

MGM shares Tuesday closed down 1.1% at $12.08 on the New York Stock Exchange.

Thanks to `Freddy` and `Mathewww` for the alerts.