Drexel Tells Turner It Can Finance MGM Bid

Ted Turner got the good news he needed Thursday. His investment banker, Drexel Burnham Lambert, said that it is “highly confident” that it can arrange financing for his $1.5-billion purchase of MGM/UA Entertainment Co.

The banker’s use of that expression in the past has been taken as a signal to the financial community that it has reached the stage in its analysis of a deal where it expects no problem in raising funds.

The announcement by the cable-television entrepreneur came after the close of the stock markets. During the day, MGM/UA’s stock had risen 62.5 cents to close at $25.75. The Turner purchase price for MGM/UA is $29 a share.

MGM/UA Chairman Frank Rothman later commented that Drexel Burnham’s opinion letter, which has been awaited for a week since the New York firm began analyzing the Turner deal’s prospects, leaves him with “no doubt” that the transaction will go through.

“I anticipate in my mind we’ll have this thing all buttoned up in about 60 days,” he said.

Turner, founder and chairman of Atlanta-based Turner Broadcasting System, pronounced himself “pleased” that Drexel Burnham “has recognized the merits of this transaction.” The announcement did not specify the type or types of financing envisioned by Drexel Burnham.

Some entertainment industry analysts earlier questioned whether the money could be raised and, if it could, whether the debt load could be carried by MGM.

Drexel Burnham, known for its success with raising capital for major ventures by issuing high-yield, high-risk bonds, generally is regarded in the financial world as being able to back up its “highly confident” opinion after arriving at the assessment.

“That is the signal that they have used in the past,” noted Dennis Forst, vice president of research at Seidler Amdec Securities in Los Angeles. “When they have said they were highly confident, they have almost always been successful in the past.”

Turner Broadcasting reported Wednesday that it had a $6.7-million net loss in the second quarter after charging off $13.7 million of its $18.2-million expenses related to its recently abandoned effort to buy CBS Inc.

The Atlanta company’s last annual report said the company was “unable to generate sufficient cash flow from operations in 1984 to meet its needs.” It said that “this deficit has been funded through external borrowings and arrangements with vendors, program suppliers and others.”

Turner’s announcement Thursday of Drexel Burnham’s letter also disclosed for the first time that the pre-1948 Warner Bros. and RKO film libraries held by United Artists will not be included in the UA assets being sold simultaneously to MGM/UA majority shareholder Kirk Kerkorian for $470 million.

When MGM bought UA in 1981, UA brought as part of its film dowry the Warner Bros. and RKO properties, in addition to more than 2,000 UA-produced pictures.

In response to a question, Rothman said: “Those (Warner Bros. and RKO) libraries were included (in the sale to Turner) from the first day. What they (Turner Broadcasting) are trying to do is stress it. There was no change in the deal since it was signed.”

The parties, in announcing a definitive agreement Aug. 7, said that the stock of UA was being sold to Kerkorian’s private investment firm, Tracinda Corp., but did not specify what went with it.

On Aug. 5, before the revelation of the Turner talks, MGM/UA said “the UA library” and a one-half interest in the current MGM/UA motion picture distribution organization would be the assets of UA to be sold to its stockholders under a proposal that it was considering.

Turner and MGM/UA have said Kerkorian intends to offer to sell a minority interest in the new UA to the MGM/UA public shareholders on the same proportionate terms as he is paying, about $9 a share.