Australian Firm Will Buy MGM/UA for $1 Billion

After nearly a year of rumors, on-again, off-again negotiations with a variety of suitors and several 11th-hour reversals, MGM/UA Communications Co. has agreed to be sold for $1 billion to an Australian company best known here for co-producing the hit TV miniseries “Lonesome Dove.”

As part of the deal, major MGM assets will be immediately repurchased by its longtime owner, Kirk Kerkorian, for $250 million.

MGM/UA announced Friday evening that it had accepted a bid from Qintex Group, a Brisbane-based firm with holdings in the media, entertainment, resorts and leisure businesses. The company owns Australia’s largest commercial television network, as well as Mirage Resorts, which operates resorts in Hawaii and the Australian state of Queensland.

A Los Angeles-based subsidiary, Qintex Entertainment Inc., produces and distributes television programming. The American unit co-produced “Lonesome Dove” with Motown Productions.

According to the terms of the agreement released by the companies, Qintex will purchase all of United Artists, which includes MGM/UA’s movie production and marketing division, its theatrical distribution operation and worldwide television distribution system. Qintex will also get MGM/UA Home Video, which includes the world’s largest home video library, according to MGM/UA, and the United Artists film library. The latter asset consists of more than 4,000 movies, including the James Bond, Rocky and Pink Panther film series and the Academy Award-winning “Rain Man.”

In the first step of the proposed transaction, Qintex will buy all of the outstanding shares of MGM/UA common stock for $20 a share in cash, or a total of about $1 billion.

In the second step, Qintex will then sell certain MGM/UA assets for $250 million to Tracinda Corp., a holding company owned by Kerkorian, MGM/UA’s principal stockholder. Kerkorian will get the MGM name and Leo the Lion logo, a library of the 34 films that MGM has released since 1986, MGM/UA Television Productions and its library of 1,750 hours of TV programming and the newly constructed MGM headquarters building in Beverly Hills.

In the third step of the proposed deal, the reconstituted MGM will then pay $75 million for 50 million newly issued shares in Qintex Group, representing a significant stake in the company. The entire deal is subject to stockholder and government approval and is expected to be completed by late summer.

MGM/UA shareholders will be offered the opportunity to invest in Kerkorian’s restructured MGM, which will concentrate on TV and movie production. Under the terms of an exclusive 35-year contract, the new MGM will turn over distribution of all its products to the Australian-owned company, which is expected to be renamed United Artists Corp.

Financier Kerkorian, who owns about 82% of MGM/UA, reportedly has been trying to unload all or part of the company since since last April. In July, he agreed to sell a 25% stake in the company to a firm controlled by investor Burt Sugarman and movie producers Peter Guber and Jon Peters. But the deal fell apart, and a number of key MGM/UA executives subsequently resigned.

Last November, published reports that Kerkorian was negotiating with Japan’s Sony Corp. drove up the price of MGM/UA stock by 33% before the talks were broken off.

About the same time, Kerkorian reportedly turned down an offer of more than $1 billion from a Monaco-based company called Elizabeth Dickenson Industries. Other recent suitors for MGM/UA have included Fox Inc., Warner Communications (before it decided to merge with Time Inc.) and oilman Marvin Davis, as well as several unidentified Japanese companies, according to sources.

In a brief interview Friday, Jeffrey C. Barbakow, MGM/UA’s chairman and chief executive, explained that MGM/UA shareholders will essentially have the option of receiving $20 a share in cash or about $15.20 in cash and the remainder in stock in the new MGM. In composite trading on the New York Stock Exchange, MGM/UA closed Friday at $16.75 a share, down 12.5 cents.

Financial Affairs

Barbakow, a veteran investment banker in Merrill Lynch’s Los Angeles office, was recruited last October to straighten out the company’s financial affairs after the Sugarman deal collapsed.

Under his guidance, MGM/UA repaid its bank debt and negotiated a deal that attaches the company’s remaining debt of $400 million--all in high-yield “junk bonds”--to the United Artists sale.

Under the terms of his employment agreement, Barbakow stands to earn a $20-million bonus when the deal closes, on top of his annual $1-million salary.

Qintex, saddled with massive debts, has in recent months moved to strengthen its balance sheet. Earlier this year, it arranged a $1.5-billion (Australian) debt refinancing package and has sold off assets, including two regional television stations and a theme park in Australia. It also sold interests in three resorts, one in Hawaii and two in Australia.

As a result of these and other moves, a leading Australian debt-rating agency recently upgraded ratings on the firm’s debt by two levels.

In the fiscal year ended July 31, 1988, Qintex Group earned $28.1 million (Australian) on sales of $577 million (Australian).

Staff writer Bill Sing contributed to this story.