Time Warner in Bidding for MGM

Time Warner Inc. has come up with a preliminary bid for Metro-Goldwyn-Mayer Inc., though it has yet to finalize either the price or other key details, people familiar with the negotiations between the two said late Wednesday.

MGM sources have in the past said that they believe buyers would pay $5 billion for the legendary Los Angeles studio. But Time Warner executives, including Chairman Richard Parsons, have privately made it clear that they think that would be a very rich price.

Officials with Time Warner and MGM declined to comment.

Time Warner, which would make any such purchase with stock, held talks with MGM last year but they were called off. The negotiations resumed recently when Sony Corp.’s effort to acquire the studio began to stall as the Japanese electronics company struggled to come to terms with its equity partners over the structure of a possible deal.

A person close to Sony indicated Wednesday that Sony and its partners, Texas Pacific Group, Providence Equity Partners and DLJ Merchant Banking, are closing in on workable structure.

Billionaire Kirk Kerkorian, who controls the movie studio with a 74% stake, is believed to prefer a stock deal for tax purposes and to look favorably on Time Warner because he thinks that company’s shares are undervalued.

MGM’s appeal is largely in its library of some 4,000 films, including the James Bond franchise, the Pink Panther series and such notable titles as “Midnight Cowboy,” “Rain Man” and “Rocky.”

Time Warner is very familiar with the library, given that its Warner Bros. Studios used to distribute MGM’s titles on video. In addition, Warner Bros. owns MGM’s pre-1986 library, which includes such classics as “Gone with the Wind,” “Singin’ in the Rain” and “The Wizard of Oz.”

Analysts consider the library a good strategic fit for a major media company, particularly given new technologies that could allow companies to further exploit MGM’s collections of movies and TV shows.

General Electric Co.’s NBC Universal also has shown interest in MGM but is considered by analysts to be more of a dark horse in the bidding race.