MGM Holdings Inc., the parent of Metro-Goldwyn-Mayer Inc., has authorized a $75-million stock repurchase plan and announced a dividend designed to protect the company from a hostile takeover.
Privately held MGM said the move was not being adopted in response to a "known effort" to acquire the company.
The Beverly Hills-based film and television studio, which emerged from bankruptcy in December 2010, unveiled a dividend for one "purchase right" for each outstanding share of its Class A and B common stock. The dividend, effectively a coupon, allows the holder to buy one one-thousandth of a share of a newly created class of preferred MGM stock at an initial price of $110.
The dividend can be exercised if a person or group becomes the owner of 10% or more of common stock, or announces a prospective deal that would make such a person or group an owner of that size.
MGM said the plan is "designed to assure that each of the company’s stockholders receives fair and equal treatment in the event of any proposed unsolicited takeover of the company, to guard against other abusive, coercive, manipulative and discriminatory takeover tactics, and to enhance the board's ability to negotiate with prospective acquirers."
MGM has experience with a hostile takeover effort. In 2010, activist investor Carl Icahn acquired an interest in the company with the goal of merging it with Lions Gate Entertainment, another company in which he held a significant stake at the time.
In July 2012, Icahn sold his roughly 25% stake in MGM back to the company. The deal was valued at $590 million.
While MGM is attempting to inoculate itself from a takeover attempt, another studio spent the summer fending off an activist investor. In May, Daniel Loeb, the chief executive of hedge fund Third Point, implored Sony Corp. to make a public offering of up to 20% of its entertainment arm. Loeb's Third Point has acquired a roughly 7% stake in Sony. The company rejected the Loeb plan in August.
MGM had a strong second quarter, reporting net income of $35.9 million in part due to the strong home entertainment performances of last year's “Skyfall” and “The Hobbit: An Unexpected Journey.” The company's revenue rose dramatically -- by 164% -- to $339 million.
“MGM’s healthy balance sheet and efficient operating structure position the company for a wide array of options to maximize shareholder value," said Ann Mather, MGM's lead director, in a statement. "The MGM Board is considering all of these options carefully, and has approved the share repurchase plan in recognition of the Company’s strong performance to date and future prospects."
MGM filed a draft registration statement for an initial public offering with the Securities and Exchange Commission in July 2012.
The company's second film in the J.R.R. Tolkien series, "The Hobbit: The Desolation of Smaug,” is scheduled to be released by Warner Bros. on Dec. 13. Among MGM's films slated to open in 2014 are a "RoboCop" reboot and "22 Jump Street," a sequel to "21 Jump Street."
The dividend distribution is payable to shareholders as of Friday at the close of business.