Time Warner considering MGM bid as deadline nears

Time Warner Inc. is considering a bid of $1.2 billion to $1.5 billion for the Metro-Goldwyn-Mayer Inc. film studio, according to two people with knowledge of the discussions, as second-round offers come due tomorrow - reports Business Week.

Warner Bros. executives, including Chief Executive Officer Barry Meyer and Chief Operating Officer Alan Horn, will iron out a possible price tomorrow with Time Warner CEO Jeff Bewkes, said one of the people, who declined to be named because the talks are private. Time Warner may decide not to make an offer, the people said.

An offer at that price may not be enough to win over MGM’s creditors, who have allowed the studio to delay making payments on about $3.7 billion in debt until March 31, said David Bank, an analyst at RBC Capital Markets in New York. Time Warner is among a dwindling number of prospective buyers after John Malone’s Liberty Media Corp. and hedge fund Elliott Management Corp., working with Relativity Media, decided not to bid, people with knowledge of the bidding said yesterday.

“At those kinds of levels, the bondholders are probably going to look at a restructuring,” said Bank, who rates Time Warner shares “outperform.” “That’s not an objectionable price for Time Warner shareholders to be looking at, but it’s definitely not what the debt holders were looking for.”

Executives at the Warner Bros. film studio are pushing for an offer at the higher end of the range, the people said.

Keith Cocozza, a spokesman for New York-based Time Warner, declined to comment, as did Susie Arons, an outside spokeswoman for Los Angeles-based MGM.

‘Not Good Enough’

If bids come in below $2 billion, there’s a realistic possibility creditors will say, “‘Sorry, not good enough,’ and decide to kick this can a little further down the road,” said Roger Smith, executive editor of Global Media Intelligence. He’s the former finance chief of Carolco Pictures and former head of strategic planning for Warner Communications, now Time Warner.

Time Warner, the parent company of Warner Bros., fell 4 cents to $31.16 at 4 p.m. in New York Stock Exchange composite trading. The shares have gained 6.9 percent this year.

MGM’s value fell below a price Engelwood, Colorado-based Liberty Media thought would be acceptable to MGM’s creditors, two people said yesterday.

MGM’s $3.7 billion term loan dropped to as low as about 50.75 cents on the dollar today and then rebounded to about 51.25 cents, according to two people familiar with the trades, who declined to be identified because the transactions are private. The loan finished trading yesterday at about 54 cents.

Also exploring a second-round bid are billionaire Len Blavatnik’s Access Industries and Lions Gate Entertainment Corp., people close to the process said last month.

Alternative to Bid

As an alternative to the bidders, News Corp., parent of Twentieth Century Fox, and Qualia Capital LLC, led by Amir Malin and Ken Schapiro, have each proposed restructuring MGM’s debt and injecting cash to recapitalize the company, people with knowledge of the process said in January.

MGM, distributor of the James Bond movies, was taken private for $5 billion by buyers including Providence Equity Partners in 2005. It owns a film library with 4,100 titles and has a co-production deal with Warner Bros. on the planned film “The Hobbit,” based on the J.R.R. Tolkien novel.

“The risk comes in making some assumptions about what the future of home entertainment looks like and what the future stream of cash flow out of the library might be,” said Chris Marangi, an analyst with Rye, New York-based Gabelli & Co.

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