$1.5-Billion Turner Deal for MGM Reported Near

MGM/UA Entertainment Co. and maverick broadcaster Ted Turner, who recently suffered a major setback in his bid to buy CBS Inc., indicated Monday that they are on the verge of a deal for Turner to buy the venerable Hollywood movie studio for about $1.5 billion cash.

A sale to Turner could provide WTBS-TV, his Atlanta “superstation,” with a flow of new movies and television programming, as well as the riches of MGM’s library of more than 2,000 films--including such classics as “Gone With the Wind” and “The Wizard of Oz.”

An MGM-Turner joint announcement cautiously said the parties were “attempting to negotiate an agreement,” but an MGM/UA spokesman later said that a definitive agreement could be “a day or two” away.

However, some in the investment community expressed skepticism Monday about whether the deal will go through.

According to the announcement, Atlanta-based Turner Broadcasting System, 86% of it owned by the 46-year-old Ted Turner, would immediately sell MGM/UA’s United Artists subsidiary for about $470 million back to financier Kirk Kerkorian, who currently owns just over 50% of Culver City-based MGM/UA’s stock.

Kerkorian then would offer MGM/UA’s former public shareholders rights to buy a proportionate amount of UA stock at $9 a share, the parties said.

United Artists would have as assets one-half of the present MGM/UA film distribution organization plus the UA film library that it held when Metro-Goldwyn-Mayer bought it in 1981. The UA library, which some consider more attractive than MGM’s own, includes “Rocky” and its sequels, the “Pink Panther” series, “Annie Hall” and other Woody Allen movies, “One Flew Over the Cuckoo’s Nest” and the pre-1948 films of Warner Bros.

The net price to Turner for MGM minus the UA assets would be slightly above $1 billion. A Ted Turner spokesman said he had no details on how the broadcaster would raise that amount of cash. Neither did an MGM/UA spokesman.

“We think the acquisition of MGM/UA by (Turner) will be of great benefit to our shareholders,” MGM/UA Chairman Frank Rothman said in the announcement. And Turner was quoted as saying that “the proposed acquisition . . . presents a tremendous business opportunity for Turner Broadcasting System and is an exceptional fit with our long-term business plans.”

After the announcement, MGM/UA’s stock, which had traded at $16 last Thursday and $18 last Friday, rose as high as $24.50 Monday before closing at $22.625, up $6.50 for the day. A whopping 2.05 million shares were traded.

Despite the big run-up in value, the fact that the final price was far below the $29-per-share price that Turner is expected to pay indicates considerable caution and skepticism among investors.

Investment analyst Dennis Forst, who earlier said the proposed sale price sounded almost too good to be true, later said in response to a question that the closing stock price “shows that people have a lot of reservations” about whether the deal could be financed. Forst, who is vice president of research at Seidler Amdec Securities here, added that the deal had a “more than normal” amount of risk and uncertainty.

Other observers noted that Turner had offered no cash--only a package of notes and high-risk bonds--in making his bid last April for CBS. Last week CBS concluded a perhaps decisive flanking move against Turner by buying back 21% of its own stock.

Turner did not say Monday whether his CBS deal is now officially dead, but industry observers concluded that since it would be impossible for him to pursue both takeover attempts at the same time, Turner’s CBS effort is effectively ended.

Lee S. Isgur, analyst at Paine Webber Mitchell Hutchins, said, “I can’t believe it’s (the MGM/UA offer) going to happen at $29 a share cash.” Not only is the price surprisingly high, he said, but both Turner and MGM/UA have records of saying they might go into a deal and “nothing has happened . . . and particularly at the prices quoted.”

Analyst Forst said he assumes that announcement of the talks with Turner has stopped the bidding among other potential suitors for MGM/UA, adding: “It’s hard to imagine anyone doing a sweeter deal than that.”

Daniel Lee, analyst at Drexel, Burnham, Lambert, which is MGM/UA’s New York investment banker, hailed the potential deal as promising “tremendous synergy” between Turner’s Atlanta superstation and the MGM film production and library.

“Overnight it would create the most vertically integrated movie studio,” Lee said. “It also allows Kirk Kerkorian to stay in the movie business with United Artists and provides $29 cash to MGM stockholders, the highest value (the stock) has ever had.”

Cool Reception

Ernest T. Kaufmann, a Los Angeles attorney for stockholders who have sued MGM/UA and its sister casino operator, MGM Grand Hotels, over past offers by Kerkorian, threw some cold water on the proposed transaction Monday.

“It sounds like a $20-a-share offer for MGM/UA, because it is getting back $9 a share for United Artists. I’m going to study this one.”

Analysts noted however, that MGM/UA public shareholders would have a choice of buying into United Artists at $9 or keeping the $29 a share obtained for their MGM/UA stock. United Artists presumably would start out publicly traded.

Meanwhile, some entertainment industry officials said Monday that while the long-term benefits of the proposed transaction look good for Turner, he may have some rough going through the first few years.

“It’s an opportunity for him to lose more money,” quipped one studio executive, who did not want his name used.

Entertainment executives speculated that Turner’s long-term goal is to use the huge MGM film library to provide a steady stream of movies to his Atlanta station, which is beamed by satellite to cable-TV systems around the country.

But current MGM pay-TV and commercial-TV syndication contracts will effectively bar hundreds of motion pictures--especially the more attractive ones--from WTBS until well into the 1990s, they say.

A Hollywood executive, who also asked not to be identified, questioned the wisdom behind a deal that, in effect, creates a new motion picture studio by re-establishing United Artists.

“It’s not the time to be opening a major studio,” he said. “In the middle of a summer when the industry’s experiencing a glut of features, the re-creation of an additional major (studio) flies in the face of conventional wisdom.”

Financial details of the expected offer, Part IV, Page 1.

Please tube to Michael Hall

in the Editorial Art Department

MGM/UA ENTERTAINMENT AT A GLANCE

A major producer and distributor of movies and television programs, MGM/UA was formed by merger of Metro-Goldwyn-Mayer with United Artists in 1981. Through its 85%-owned home entertainment unit, it licenses its vast film library--the largest of any Hollywood studio--to pay TV, home video and other markets. Kirk Kerkorian’s Tracinda Corp. owns 50.1% of the outstanding stock.

Story, Part I, Page 1

Year ended Aug.31 1984 1983 1982 In millions of dollars Revenues 706.9 723 806.3 Net income 34.7 39.4 27.5

How the Proposed Offer for MGM/UA Would Work Ted Turner’s Turner Broadcasting System would buy all shares of MGM/UA for $29 a share of $1.5 billion. TBS would sell United Artists to Kirk Kerkorian’s Tracinda Corp. for $9 a share or about $470 million. TBS would keep MGM as a private company. Tracinda plans to offer a minority interest to former public shareholders of MGM/UA for $9 a share.