By Peter Thal Larsen and James Politi in New York FT.com site Jul 01, 2004 Shares in Metro-Goldwyn-Mayer rose on Thursday amid hopes that a bidding war is about to break out for the last independent Hollywood studio. Time Warner, the giant media group, has made a preliminary offer for MGM which values the studio at slightly less than a $5bn cash and debt bid fromSony, people familiar with the talks said. However, Time Warner's bid could prove more attractive because it involves paying Kirk Kerkorian, the billionaire investor who has a controlling stake in MGM, in shares rather than cash. Time Warner has examined a purchase of MGM several times in the past. A deal is also considered less of a priority for Time Warner than for Sony, which needs to bulk up its film library. MGM told investors at its annual meeting on Tuesday that it was still considering multiple options for its future. "As it turned out, we have more strategic alternatives available to us than we realized," said Alex Yemenidjian, MGM's chief executive. Talks are expected to continue for the next few weeks, and no announcement is imminent. MGM shares closed up 56 cents at $12.66 on Thursday. While Sony is seen as the more motivated buyer, Time Warner has a close knowledge of the studio. People close to the negotiations said it may also be interested because MGM has the rights to distribute any film based on The Hobbit, the book by J.R.R. Tolkien which preceded Lord of the Rings. Time Warner's New Line Cinema subsidiary released the Lord of the Rings films, which have taken almost $3bn at the box office worldwide. It also has the rights to make a movie version of The Hobbit, but would have to come to an agreement with MGM before it could be released. Given the huge success of Lord of the Rings, those distribution rights could be worth hundreds of millions of dollars. That said, there are no current plans to make the film as Peter Jackson, the Oscar-winning director of the Lord of the Rings series who would be the most likely to lead the production, is currently working on a version of King Kong. Time Warner's offer, which is non-binding and subject to due diligence, envisages paying MGM's public shareholders around $13 per share in cash - similar to Sony's proposal. However, Mr Kerkorian would then receive Time Warner shares in exchange for his MGM stock at a lower valuation.