MGM/UA Says It May Spin Off United Artists Unit for $500 Million

MGM/UA Entertainment Co. said Tuesday that it is “seriously exploring” a plan to spin off its United Artists movie subsidiary to its public shareholders for $10 a share, or about $500 million. The company also said it may sell MGM/UA and its non-UA assets to outsiders.

The company said it has had many recent inquiries from “substantial” outsiders expressing “a strong interest” in acquiring MGM/UA or part of its assets and operations.

Chairman Frank Rothman said the company now is consulting its investment banker, New York-based Drexel Burnham Lambert, about the advisability of “selling MGM/UA, other than the United Artists assets.”

MGM/UA’s stock closed Tuesday at a 52-week high of $16.50 a share, up 75 cents on above-average volume in composite New York Stock Exchange trading.

‘Master Plan’

Financier Kirk Kerkorian owns 50% of MGM/UA and therefore would be entitled to acquire 50% of an independent United Artists. The announcement by Culver City-based MGM/UA appeared to bring Kerkorian another step closer to what observers have speculatively called his “master plan” for his holdings. These include about 70% of publicly traded MGM Grand Hotels, the Nevada gambling resort operator whose two casinos recently were reported to be the subject of interest by potential buyers.

Wall Street analyst Mario Gabelli said he had believed until Tuesday’s announcement that Kerkorian’s “master plan” might be to position himself to buy all MGM/UA and MGM Grand Hotels shares that he doesn’t already own.

Seven weeks ago, MGM/UA disclosed that it was exploring various restructuring proposals, including one to split the company and sell one of its two movie studio subsidiaries to MGM/UA’s shareholders.

Details given Tuesday show that principal assets of a separate United Artists would include its film library and a half-ownership in MGM/UA’s theatrical distribution organization.

The UA library includes 14 James Bond films, “Rocky” and its sequels, the Pink Panther series, “Annie Hall” and other Woody Allen pictures, “One Flew Over the Cuckoo’s Nest” and the pre-1948 Warner Bros. library.

MGM/UA’s announcement said Kerkorian would acquire “at least” his pro-rata share of UA if it is spun off.

One observer noted that, to the extent that public shareholders do not buy all of the stock they are offered, Kerkorian would stand to increase his ownership percentage.

Will Decide Soon

The company said it envisioned using nearly $200 million of the $500-million proceeds to pay off all of MGM/UA’s bank debt. The rest “may be used” for general corporate purposes, it said.

Tuesday’s announcement said MGM/UA expects to make a final decision concerning the offering in the “near future.” In answer to a question, Rothman said this could be in two or three weeks.

Rothman noted that the acquisition interest resulted from its earlier announced study of possible restructuring.

“We are obviously going to consider seriously whether this makes sense to our shareholders,” Rothman said.

A question raised by Tuesday’s announcement was: What would MGM/UA shareholders get in paying $10 a share for United Artists that they do not already own in MGM/UA?

Rothman suggested that the idea should be “conceptualized differently.” If MGM/UA had decided to sell the UA library for $500 million “to, say, General Motors,” the stockholders would own a company with the $500 million cash instead of the film library, Rothman said. The proposed spinoff would result in MGM/UA shareholders having stock in one company holding the $500 million and rights to buy stock in another publicly traded company holding the library.

“It would not be selling him something he already owns,” Rothman said.

The executive conceded that the plan was not a conventional spinoff, as when the original Metro-Goldwyn-Mayer Film Co. was divided into two publicly traded firms in May, 1980. Shares of the newly created MGM Grand Hotels were distributed then to Metro-Goldwyn-Mayer shareholders in proportion to their holdings. The shares later increased in value on the stock market.

Stronger Financial Position

Tuesday’s MGM/UA announcement said the proposal of an offering of stock rights in UA “is consistent with our original objective in acquiring United Artists in 1981, to enable MGM/UA shareholders to maintain investments in two motion picture companies.”

He said the offering would strengthen the financial position of MGM/UA by providing it with about $500 million cash, “while enhancing the investment opportunities available to our shareholders.”