MGM’s timing off

Jan 21, 2002  •  Post A Comment

Kirk Kerkorian, the three-time principal owner of MGM, wants to cash in his chips on one of Hollywood’s last remaining independent studios-again.
But his timing may be off.
With the help of investment banker Goldman Sachs, the studio is accepting first-round bids from interested parties. Such bids could fall short of the $7 billion price tag, or $30-plus a share, Mr. Kerkorian has placed on the company. Although MGM stock shot past its one-year high of $23 on sale speculation, well-placed sources said prospective suitors do not want to move much past the current $5 billion market cap.
Jeffrey Logsdon, analyst at Gerard Klauer Mattison, said $7 billion in “not unreasonable,” given MGM’s “scarcity value” and because MGM could generate $500 million in operating cash flow in 2002 and net $150 million in overhead savings that another studio could initially extract.
Late last week, The Walt Disney Co., News Corp., DreamWorks SKG, Viacom and Vivendi Universal all appeared interested, but only Disney was willing to engage in serious talks. However, sources said relations were strained between MGM and Disney after Disney allegedly leaked news of the discussions to the press. MGM and Disney officials declined comment.
Sources said MGM has asked interested parties to sign confidentiality agreements before preliminary discussions and due diligence begin.
MGM could suffer from nearly all the potential suitors currently being distracted. Disney is wrestling with the problems of its recent $5 billion acquisition of Fox’s Family Channel and with ABC’s ratings shortfalls; NBC is trying to close its TV station deals, including the acquisition of Telemundo; and News Corp. and Viacom are pushing for massive deregulation and are concerned about stemming the decline of their own stock price. AOL Time Warner is in the throes of a management change and trying to keep its balance sheet and stock in check. Vivendi Universal is eager to strengthen its foothold in the United States but already is digesting a new stake in EchoStar Communications and merging its entertainment assets with those of USA Networks.
The most important factor working in MGM’s favor is its outstanding film library of about 4,100 titles and the returning rights to so many of the film classics, such as the James Bond movies, that former owners leased away.