Murdoch Bids $1.8 Billion for MGM/UA

In an 11th-hour move, two companies controlled by Rupert Murdoch have bid $1.8 billion for MGM/UA Communications Co., which was slated to merge in two weeks with Qintex, an Australian company. If Murdoch’s slightly higher bid succeeds, he would control two major Hollywood studios that together captured nearly 22% of the box office in 1988.

MGM/UA said that its directors will meet today to consider the offer, made jointly by News Corp. Ltd. and Fox Inc., the parent of rival film studio 20th Century Fox Film Corp. MGM/UA is being pressed for an answer within 24 hours, according to one executive familiar with the bid.

The last-minute maneuver is reminiscent of Paramount Communications’ surprise bid for Time Inc. in June as that company was about to merge with Warner Communications Inc. The Paramount bid was ultimately defeated, but it intensified the current wave of consolidation in the media and entertainment industries.

And Murdoch’s bid provided fresh evidence--if Hollywood needed any--that fraternal courtesies are fast disappearing. Just four months ago, after Qintex announced its deal with MGM/UA, Murdoch gave a party for Qintex Chairman Christopher C. Skase to introduce him to the creative community. “Everybody in town was there,” a rival studio executive recalled Wednesday, adding cynically: “Welcome to the jungle.”

MGM/UA’s immediate fate will be determined by 72-year-old financier Kirk Kerkorian, who has controlled MGM for the last two decades and acquired United Artists in 1981.

MGM Stripped of Assets

Over the years, Kerkorian has stripped historic MGM of many assets, including the MGM studio lot and film library. But he has also bought back some assets, such as the MGM name and “roaring lion” logo, which he planned to repurchase again from Qintex. MGM/UA shareholders were scheduled to vote Sept. 23 on the Qintex deal.

Murdoch’s offer, if accepted, would end Kerkorian’s whimsical 20-year reign.

According to an internal MGM/UA memo circulated Wednesday, News Corp. and Fox indicated that they “intend to operate the MGM/UA businesses aggressively,” which would mean MGM/UA’s survival as a major film distributor, one insider contended.

To Murdoch-watchers, the last-minute bid underscores his commitment to obtaining more programming for his far-flung media and entertainment holdings, which include Sky Television, a British satellite-fed television service.

‘Good Long-Term Move’

“Financially, it’s a very expensive move. Strategically, its a very good long-term move,” said John Tinker, a securities analyst at Morgan Stanley & Co. in New York. “News Corp. believes that there is an increase in demand worldwide for (programming). The best way to meet that is to make more movies and to keep building an international distribution pipeline such as Sky Television.”

Murdoch “has an insatiable appetite for these properties,” said one Wall Street trader, and another securities analyst declared: “He’s like a shark. He can’t sleep.” Both men, who asked not to be identified, said they believe Murdoch may be paying too much.

MGM/UA’s sale has been expected for nearly 18 months, ever since the company announced that it had received offers from Weintraub Entertainment Group and a family partnership led by former Fox owner Marvin Davis.

After that announcement, a number of companies looked over the MGM/UA assets--including every major studio, with the exception of Columbia Pictures. From other continents, the interested parties included Polygram, Sony and C. Itoh & Co., but MGM/UA eventually settled on Qintex’s offer to pay $20 for each share of common stock.

Offer Put at $1.6 Billion

Qintex’s offer is valued at about $1.6 billion, including the assumption of $400 million in MGM/UA debt, but the Australian firm would actually spend closer to $600 million after reselling certain MGM assets to Kerkorian.

The two offers are difficult to compare, because Murdoch would acquire the entire company by paying $23.16 for each share of common stock, while Qintex has offered just $20 a share but intended to sell back certain assets.

MGM/UA’s stock rose $1.50 to close at $21.25 on the New York Stock Exchange, with 734,700 shares changing hands. News Corp., which was not identified as the bidder until late Wednesday, lost 12.5 cents a share to close at $25 on the New York exchange.

Qintex has been plagued by rumors that it was having difficulty arranging financing for its MGM/UA deal, but the company announced just last week that it had obtained a $400-million commitment from its bankers. In addition to owning an Australian television network, Qintex operates resorts and holds a controlling stake in a Los Angeles TV production company that scored a hit last season with the miniseries “Lonesome Dove.”

Antitrust Worries Cited

Earlier this year, after MGM/UA spurned a lower Murdoch bid, it disclosed that it had haggled with Fox over which side would assume the risk if the deal collapsed beneath antitrust objections.

Fox apparently has not been deterred by antitrust concerns. The Justice Department objected 10 years ago to Kerkorian’s purchase of a 25% stake in Columbia Pictures, but it lost in court. (Later, Kerkorian sold the Columbia investment.) Since that case, the Justice Department has allowed two other studio mergers to go through without a murmur.

“I think (the federal government) will let it go, but they shouldn’t,” said one antitrust specialist, who spoke on the condition that he not be identified.

According to data compiled by Daily Variety analyst A. D. Murphy, Fox ranked third at the box office last year with 11.6% of ticket sales, and MGM/UA ranked fifth, with a 10.3% share. Together, the two studios would have captured the top ranking from Walt Disney Co., which accounted for 19.4% of box office receipts in 1988.

As of Sept. 4, Fox had slipped to seventh place with a 6.4% stake, and MGM/UA has garnered just 3.7% of box office receipts, Murphy said.

Qintex Chairman Skase could not be reached for comment Wednesday, but the company’s chief financial officer, John Lloyd, said it is weighing its alternatives.

Can Cancel Merger

It would appear that, unless it raises its bid, Qintex’s options are few. Under the terms of the agreement, MGM/UA may cancel the merger if it finds a more “financially advantageous transaction,” so long as it pays Qintex a fee of $18.2 million--less than the $20-million bonus that Jeffrey C. Barbakow, the MGM/UA chairman, is set to receive if the company is sold.

For MGM/UA’s hundreds of employees, the Murdoch announcement was just one more jolt in their roller-coaster ride since the company went on the auction block 18 months ago. If the Murdoch bid is accepted, “Fox would have direct operating control of the company within 60 days to 90 days,” according to the MGM/UA internal memo.

One insider reacted cautiously: “They’re telling everybody in the company that (Fox is) intending to run the company, but who knows?”

Others were more skeptical, citing similar promises when MGM acquired United Artists and when Columbia Pictures merged with Tri-Star Pictures. In both cases, autonomy was reduced and jobs were lost.

“We’ve heard that before at Columbia and with MGM/UA,” the antitrust specialist said.

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