Financial Express
May 1, 2004
Sony Corporation is in talks to buy out Metro-Goldwyn-Mayer (MGM) –
one of Hollywood’s oldest studios. If the deal goes through, Sony will
buy out the legendary movie studio together with two private equity
firms – Texas Pacific Group and Providence Equity Partners. MGM is
apparently looking at a $ 5 billion deal, including debt tied to a
planned dividend payment. Under the terms being discussed, the three
partners would put up a total of $ 1.5 billion in cash, and borrow the
remainder to finance the deal. MGM is currently valued at $ 4.1
billion, which makes the asking price of $ 5 billion a significant
premium.
The key negotiator on the MGM-side is octogenarian billionaire
financier and deal-maker Kirk Kerkorian, who owns 75 per cent of
MGM. Kerkorian’s investment firm, Tracinda Corp., has bought and sold
MGM several times over. He first bought the studio in 1969, later
selling it to media mogul Ted Turner. He last bought it back in
1996. This is not the first time that Sony and MGM have been at the
negotiating table. It neared a deal a few years ago to merge with Sony
Corp.’s movie business, Sony Pictures Entertainment. The transaction
would have involved a so-called “reverse merger,” whereby Sony would
have folded its movie business into MGM in exchange for a majority
stake, but the talks were scuttled in 2001. Neither is Sony the only
interested party in MGM. Among the frequently mentioned suitors for
the movie studio are Sony, Disney, Time Warner and News Corp. MGM’s
value lies in the company’s library of over 4,000 films – the world’s
biggest movie library. It’s franchises include James Bond, Rocky,
Robocop and the Pink Panther (a franchise which it hopes to revive
next year with a new movie starring Steve Martin) together with an
estimated 10,000 TV episodes. Sony, for its own part, already has a
catalogue of 4,000 films (largely inherited from the buyout of
Columbia Tristar several years ago), including franchises like
Spider-Man, and is the second largest distributor of movies in North
America (MGM is ninth). Sony’s successful acquisition of MGM would
make it the single largest market shareholder at the US box office,
based on 2003/2004 figures. MGM’s movie library offers any potential
buyer the opportunity to leverage these assets to create a very
lucrative cash cow by tapping into the DVD market. Old movies can be
packaged into new DVD editions, and broadcast deals can be struck with
content starved cable and satellite channels. This could successfully
create a business which is more immune to the vagaries of
film-making. Sony’s interest in MGM this time round is also in sync
with the company’s current movements in the consumer electronics and
games industries. Sony is scheduled to launch the PlayStation Portable
at the end of this year, offering movie playback off a new media
format, UMD. For UMD to take hold, software support in the form of UMD
movie releases is crucial. Sony-MGM’s combined movie library could
give the company enough of a critical mass to get UMD off the ground
all on its own. But this deal is far from done. It is reported that
Time Warner is also considering submitting an offer together with
private equity firm Thomas H. Lee Partners. Analysts have suggested
that after recently reducing its overall debt load, TW will have to
choose between a takeover play for MGM and possible acquisition
opportunities in the cable industry like bankrupt Adelphia
Communications. TW has expressed an interest in both cable and film
library assets. Viacom, another industry player interested in MGM’s
library, has ruled itself out as a bidder for the moment. Viacom
already owns Paramount Pictures and MGM would be a welcome addition
but apparently “the price is not right”. Price disagreements have been
the spoiler for MGM’s past attempts to strike a deal with major
studios. Whichever company buys MGM will buying a slice of Hollywood
history. MGM, whose slogan was “more stars than there are in the
heavens”, is one of the founders of the modern Hollywood studios. It
was formed in 1924 when Louis B Mayer Pictures, Samuel Goldwyn’s
Goldwyn Pictures and Metro Pictures merged. MGM is closely associated
with the Oscars. The event was partly the brainchild of Mr Mayer and
one of MGM’s art directors designed the Oscar statuette. The story of
Kirk Kerkorian too, is the stuff of Hollywood legend. The son of
Armenian immigrants, who left home at the age of nine to sell
newspapers on street corners, he has gone to become a media-casino
tycoon.
It is still to be seen where, and if, the penny drops. As the global
media world waits for the outcome with bated breath, India’s media
world too will be anxious to see how an ownership change at MGM may
impact India’s own Zee TV which broadcasts the Zee-MGM channel.
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