Turner Near Deal to Buy MGM/UA, Sources Contend

Cable entrepreneur Ted Turner and MGM/UA Communications are close to reaching an agreement for the studio’s sale to Turner Broadcasting System in a stock swap, sources said Monday.

Each share of MGM/UA would be valued in the low $20s, one industry executive estimated, but he--like others--spoke cautiously because of MGM/UA’s recent history of failed sales. Indeed, less than two weeks ago, sources were pessimistic about Turner-MGM discussions because the two sides were reportedly far apart on price.

In the intervening days, however, bids have not materialized from two likely suitors: media magnate Rupert Murdoch and a foreign venture controlled by MCA Inc. and Paramount Communications. Sources indicated Monday that neither team made a bid this go-round, even though both had looked over the company’s books in the past.

If Turner acquires MGM/UA for $1 billion or more, the price will underscore industry claims of the soaring value of major film libraries. Just three years ago, Turner briefly owned MGM/UA’s main asset--its 1,000-title United Artists library--before reselling it for $470 million to MGM/UA majority shareholder Kirk Kerkorian.

“There’s no question that (Turner) is paying a lot more for (United Artists) today,” said one executive, “but I wouldn’t cry too much for poor Ted. . . . He’s done quite well, too.”

The executive alluded to Turner’s successful launch of a new cable-television service called Turner Network Television. One year after its debut, TNT has been valued at $800 million, or very nearly as much as the $1 billion that Turner paid in 1986 to acquire the MGM film library, which is a key source of the cable network’s programming.

Turner resold the United Artists library in 1986 because he needed to reduce the debt that he’d assumed to acquire the MGM films. That burden also forced him to bring in major cable-TV companies as new shareholders in Turner Broadcasting System.

Although Turner’s latest bid for MGM/UA requires the backing of his two largest shareholders--Tele-Communications Inc. and Time Warner Inc.--their exact role could not be learned on Monday. In the past, sources have indicated that the two might act as Turner’s partners in a bid for the studio.

Even though Turner Broadcasting recently refinanced $1.4 billion in long-term debt and increased its bank borrowing capacity, the company wants to use stock rather than cash to complete the MGM/UA acquisition. Turner Class B shares closed Monday at $54, down 25 cents, on the American Stock Exchange, in sharp contrast to a 52-week low in the $14 range.

Earlier bids for MGM/UA were made in cash.

Murdoch, in fact, bid twice this year for MGM/UA but was topped in September by a $25-per-share offer from the Australian Qintex group. MGM/UA claimed to have an iron-clad deal but the sale collapsed when Qintex failed to deliver a $50-million payment. Qintex has since sought bankruptcy protection from creditors in an Australian court.

The prior year, MGM/UA signed a letter of intent to sell MGM and 50% of the company’s distribution companies to Barris Industries, but that deal also fell apart.