MGM to tell investors it is exploring multiple options with an update on Sony buy-out offer

29-Jun-2004 • Bond News

Metro-Goldwyn-Mayer is tomorrow expected to tell investors it is still exploring multiple options for its future as talks about a possible sale of Hollywood's last independent studio drag through the summer, reports The Financial Times.

MGM is set to give shareholders the update at its annual meeting tomorrow amid continuing talks with Sony, the Japanese electronics giant, which has made a preliminary $5bn offer for the company.

Last month, MGM delayed the date of its annual meeting by six weeks so its board could consider what it described as "strategic alternatives". At the time, people close to the negotiations said MGM was hopeful it could agree a deal before the end of June. But those people now believe a deal - if one can be reached - is unlikely to be announced for several weeks.

Sony, which is bidding as part of a consortium that includes Providence Equity Partners and Texas Pacific Group, the private equity firms, is still considered the most likely buyer for MGM.

However, the delay could give rivals such as Time Warner more time to decide whether to submit an offer.

Time Warner is familiar with MGM's operations as it has studied making an offer for the studio in the past, and executives of Time Warner and MGM have held talks in recent weeks, people close to the discussions say.

Dick Parsons, Time Warner's chairman and chief executive, is keen to preserve some of the company's financial firepower as he prepares an offer for Adelphia, the bankrupt cable group currently up for sale.

Time Warner is thought to be restricted from issuing shares to investors until the US Securities and Exchange Commission has completed its investigation into accounting practices at the company's America Online.

But some investors believe Time Warner could circumvent those restrictions by issuing stock directly to Kirk Kerkorian, the billionaire investor who is MGM's controlling shareholder.

Sony's consortium is designed to limit the Japanese group's financial commitment to a deal. Under the terms, Sony and its partners would commit about $1.5bn in equity, and finance the rest of the consideration with debt secured on the cash flow from MGM's film library.

But this structure has raised questions about how the private equity firms will be able to cash in their investment. NBC Universal, the entertainment arm of General Electric, had been seen as another potential bidder. But it is thought to be concentrating on integrating its merger with Vivendi Universal's US entertainment assets.

Thanks to `Ken` for the alert.