MGM: On the Block, Again MGM’s private equity owners are shopping it for $5.2 billion, but the fabled studio faces skeptical bidders and a ticking clock on its credit line
by Ronald Grover
The fabled MGM studios, which seems to have had more owners than its James Bond character has had lady friends, is on the block once more. The studio, currently owned by a consortium that includes private equity funds and cable giant Comcast (CMCSA), has asked Goldman Sachs (GS) to sound out potential suitors, according to two sources with knowledge of the process. The asking priceÃ¢â‚¬â€said to be $5.2 billionÃ¢â‚¬â€is considered hefty for a company that has had few hits and recently jettisoned one of its two top filmmaking executives.
Metro-Goldwyn-Mayer refused to comment. But those with knowledge of the overtures say the company has asked Goldman, which advised the studio when it was last sold in 2004, to focus primarily on so-called strategic buyersÃ¢â‚¬â€namely other entertainment companies that would likely fold MGM into existing operations. Among those who are said to have taken a look, and so far passed, is the Mumbai-based Reliance ADA Group, which is reportedly in the final stages of providing $500 million in funding to director Steven Spielberg to establish a new DreamWorks film company. Reliance could not be reached for comment.
The decision for MGM to sound out potential buyers is said to have come from its private equity owners, including Providence Equity Partners and TPG. Those two firms, along with Comcast and Sony (SNE), paid roughly $5 billion in debt and equity in September 2004 to acquire the then-publicly traded MGM from its majority owner, billionaire Kirk Kerkorian. In a twist, Kerkorian is said to have recently offered roughly $3 billion for the 84-year-old company, a bid that was quickly dismissed. Kerkorian was not available for comment on Aug. 22.
DECLINING DVD REVENUES
Even so, it is unlikely that the current MGM owners will get their $5.2 billion asking price, according to one prominent Wall Street dealmaker who has been privy to the thinking of potential buyers. The studio, home to such iconic franchises as James Bond, Rocky, and the Pink Panther, generates much of its revenue from a 4,000-title library of older films. Last year that catalog generated $558 million in cash, but the DVD market has begun to decline seriously. At the end of August, the company will get the last of a series of distribution fees totaling $625 million from News Corp.’s Twentieth Century Fox (NWS), which distributes MGM’s DVDs. The private company lost $400 million in its most recent fiscal year, which ended in March, MGM told The New York Times (NYT) recently.
In 2009, MGM is scheduled to win back the rights to the James Bond franchise from Sony, which Sony won for its help in assembling the 2004 buyout. Bond is clearly the studio’s major selling point, with that franchise alone estimated to be worth $2 billion. But MGM is still struggling under massive debtÃ¢â‚¬â€$3.7 billion from the initial acquisition and $250 million it has committed from a $500 million revolving credit line its CEO, Harry Sloan, arranged for the company’s United Artists unit. The first film under that fundÃ¢â‚¬â€the 2007 Robert Redford-Tom Cruise-Meryl Streep flick Lions for LambÃ¢â‚¬â€lost about half of MGM’s $75 million investment. Another UA film, the World War II thriller Valkyrie, will cost $180 million to produce and market later this year.