MGM shares jump 7% with news that a buy-out deal could be imminent

01-Sep-2004 • Bond News

Metro-Goldwyn-Mayer Inc. shares jumped more than 7 percent on Wednesday on a report that a deal to acquire the company for up to $5 billion could be announced as early as next week - reports Reuters.

MGM, the film studio behind the James Bond franchise, has been in protracted merger talks since early this year with a group led by Sony Corp. and more recently, with Time Warner Inc.

Sources close to the talks have said Time Warner has taken a slight lead as the more likely candidate to buy MGM. Both possible bidders are still in talks with MGM and no deal has been signed, one of those sources said.

But an Aug. 27 internal memo sent to some MGM employees and obtained by Reuters, said certain employees' ability to buy and sell MGM common stock is now restricted until further notice, a sign that the company expects the release of news that could affect its stock price.

Companies that open and close employee trading windows generally do so ahead of earnings reports or other news to protect against improper trading that could violate securities laws.

MGM's stock price rose 86 cents, or about 7.5 percent, to $12.26 in mid-morning trading on the New York Stock Exchange.

A merger arbitrageur watching the trading cited a Reuters report late Tuesday as the reason for the activity because it hinted at possible timing on a deal.

Talks between MGM and both Sony and Time Warner have been widely reported, but timing on any announcement has been fuzzy. MGM controlling stakeholder Kirk Kerkorian could still choose to walk away from the merger negotiations.

Sony is working on a bid that could offer MGM up to $5 billion, while any Time Warner bid would be lower in value but be paid partly in Time Warner stock, sources said, a move that would save Kerkorian a hefty tax bill.

The talks with both parties are still fragile and could easily fall apart, sources said.

Thanks to `Mathewww` for the alert.