MGM/UA Agrees to $1-Billion Buyout by European Company

In a deal combining two of the oldest names in the film industry, MGM/UA Communications Co. said today it agreed to be bought by the European film conglomerate Pathe Communications Corp. for just over $1 billion.

For MGM/UA, the deal ends a Hollywood epic in which the studio, headed by reclusive movie mogul Kirk Kerkorian, sought a buyer and saw a number of deals fall apart.

Under the new proposal, Pathe Communications Corp., which takes its name from Pathe Cinema S.A. of France, a 100-year-old company, will begin a tender offer paying $20 a share for MGM within five days.

The offer is a sharp premium over the $14 close of the MGM/UA stock Tuesday. But it is well below the $25 proposed last year by one serious suitor.

MGM/UA said the transaction has been approved by both boards and requires filings with government agencies.

Pathe is a diversified film producer with a film library of more than 1,200 titles. It controls more than 1,000 movie screens in five countries and has film production facilities in Italy and a film laboratory in France.

MGM, the descendant of Hollywood pioneer Metro Goldwyn Mayer, has been in a decline in recent years, although it managed recent critical and box office hits such as “Moonstruck” and “A Fish Called Wanda.” The UA in its title derives from the old-line Hollywood studio, United Artists, whose 1,000-title library belongs to MGM/UA.

Kerkorian, known more for the creativity of his financing than for his film artistry, has talked with a number of buyers, and a $1.5-billion deal with the Australian entertainment company, Qintex Ltd., was scrapped as it neared completion.

Rupert Murdoch’s News Corp. was also close to acquiring MGM/UA. Japan’s Sony Corp., Turner Broadcasting Co. and cable giant Tele-Communications Inc. were also said to be in talks about acquiring MGM/UA at one point.

Under the deal, MGM/UA’s principal shareholder, Tracinda Corp., headed by Kerkorian, has agreed to tender all its common and preferred shares at the tender price, and closing of the transaction is expected by June 23.

MGM/UA has about 51 million common and 10 million preferred shares outstanding.

The company said that in support of the transaction, Pathe has agreed to place $200 million into an escrow account in increments of $50 million each on March 9, April 9, May 9 and June 9.

It said Pathe has also granted MGM/UA distribution rights and a security interest in up to $75 million of the net distribution proceeds of certain motion pictures as additional security for Pathe’s performance under the agreement.