Sony Needs to buy MGM and James Bond to expand film unit, says CFO

Sony Corp. Chief Financial Officer Katsumi Ihara said the company needs to buy Metro-Goldwyn-Mayer Inc. to expand its own film unit, after reports that Time-Warner Inc. made a bid for the owner of the James Bond movies.
"The deal is necessary for our pictures business to grow in the longer term," Ihara, 53, said in an interview from Sony's Tokyo headquarters, declining to comment on the status of talk - reports Bloomberg.

Sony, Texas Pacific Group and Providence Equity Partners are negotiating to buy MGM for almost $5 billion, the Wall Street Journal reported last week. Time Warner, the world's largest media company, offered as much as $4.6 billion in cash for MGM, the Journal said, citing people familiar with the offer.

Sony, whose "Spider-Man 2" earned $740 million at box offices worldwide, is seeking to expand the library at its movie business, which accounts for about a 10th of Sony's sales. Standard & Poor's said in May that Sony's credit quality could be affected by the purchase's cost, delaying an earnings recovery.

"A larger library would help Sony's online distribution and DVD or video sales," said Hiroyoshi Nakagawa, who helps manage the equivalent of $3.5 billion of Japanese equities at Societe Generale Asset Management (Japan) Co. He won't disclose if he owns Sony shares. "As an investor, there are doubts on how much return on capital can be expected."

The acquisition would add Los Angeles-based MGM's more than 4,000 films, including "West Side Story" and "James Bond",' to Sony's "Spider-Man" and "Men in Black" series.
The purchase would also follow the merger of Sony's recorded music business earlier this year with Bertelsmann AG. Sony's $3.4 billion purchase of Columbia Pictures in 1989 is the company's biggest acquisition, spokeswoman Mami Imada said.

"Acquiring MGM will help our pictures business grow even more rapidly" because of the film library and rights to produce new films, Ihara said. Similar partnerships are likely "within Sony's total financial capability," he said.

Billionaire Kirk Kerkorian, who has a controlling stake in MGM, earlier this month disputed reports saying the film studio may announce an agreement as early as this week. MGM, through a statement, last week said it's ``actively continuing'' its consideration of strategic alternatives.
MGM's shares have declined 12 percent since April 27 when the Wall Street Journal said the Sony-led group sent a letter formally indicating its interest. The Standard & Poor's 500 Index has dropped 2 percent. Sony's shares, which have fallen 15 percent since April 27, rose 0.8 percent to 3,920 yen today.

Sony, which is also the world's second-largest consumer- electronics maker, expects the acquisition to improve earnings by gaining the rights to color films such as the James Bond series, Ihara said. Sony would also acquire rights owned by MGM for films yet to be made or in development.

Aided in part by lower marketing costs, Sony's movie business posted a 4.1 billion yen ($37 million) operating profit in the three months ended June 30, compared with a 2.4 billion yen operating loss in the year-earlier period.
MGM ranks 10th in domestic box-office sales this year among Hollywood studio owners with $175.3 million through July 25, box- office tracker Nielsen EDI said in July. Time Warner, owner of Warner Bros. and New Line Cinema, ranks first with $1.01 billion.

Before becoming Sony's CFO, Ihara headed Sony Ericsson Mobile Communications Ltd., the mobile-phone joint venture with Ericsson AB which he led to profitability in its second year of operations. Ihara also serves as Sony's chief strategy officer.

Thanks to `Mathewww` & `JP` for the alert.

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