Warner to Help Finance Pathe’s MGM/UA Offer : Entertainment: Under the $650-million deal, Warner will distribute MGM/UA releases. The move adds to Time Warner’s clout in the cable-TV business.

Time Warner Inc. emerged as a major backer of Pathe Communications Co.’s $1.2-billion bid for MGM/UA Communications Co., under a deal that will give the New York-based media giant substantial control over the distribution of MGM/UA movies in theaters, home video, cable and other media.

In a complex arrangement, Time Warner’s Warner Bros. film unit will loan MGM/UA $650 million in exchange for worldwide distribution rights to the 1,070-title United Artists film library and all future MGM/UA and Pathe films, the companies said Monday.

The deal marked a giant step in the effort by Pathe’s co-founders, Giancarlo Parretti and Florio Fiorini, to line up funding for the MGM/UA acquisition.

But it also provoked expressions of concern about diminished competition in the movie industry, as Time Warner--which owns theaters, cable systems and pay cable services HBO and Cinemax as well as a major movie studio--continues to expand its reach. In effect, the deal would give Time Warner a rich new source of films.

“We obviously would look with grave concern upon anybody in the cable business acquiring further distribution rights,” said Sidney Sheinberg, MCA president. “I’m very concerned about the antitrust implications as they impact on Time Warner in cable.”

Donald Fox, president of Fox Theaters in Reading, Pa., said he feared that the distribution deal would decrease the number of films available for his theaters. “Everybody needs to study this.”

The Justice Department routinely reviews large deals between companies for possible violations of federal antitrust law.

Warner and Pathe are expected to disclose in an amended Securities and Exchange Commission filing this week that Time Warner Inc. will get the right to acquire up to about 20% of Pathe’s stock. Time Warner already owns 1.2% of Pathe’s stock.

Pathe also said Monday that it paid the second of four $50-million deposits on its acquisition.

But the company didn’t say how it expected to raise the balance of the acquisition price, about $450 million. Pathe will also assume nearly $390 million in MGM/UA debt in the purchase.

Under the complex financing arrangement, both Warner Bros. and Time Warner will guarantee the loan, which is secured by the UA film library. With that money MGM/UA will then purchase certain motion pictures from 780-title Pathe library of old European films and newsreels, which in turn will use those funds to help pay for its MGM/UA acquisition.

Executives from both Pathe and Warner were careful to call the arrangement a “service agreement” and insisted that “technically” MGM/UA will remain in the distribution business while working through Warner Bros. marketing and distribution machinery.

Lee Isgur, an entertainment analyst at Paine Webber, said Parretti will be able to take the distribution agreement to a bank and use that as collateral for loans to finance the remaining $450 million of the purchase price. “The banks will put up a significant amount of money,” Isgur said. “But the real question is what happens to MGM/UA on an on-going basis?”

“From Warner’s point of view one would have to assume that Pathe is going to be able to (quickly increase) production on a full scale,” said Jeffrey Logsdon, an analyst with the Los Angeles-based securities firm of Crowell, Weedon & Co. Logsdon said that even though Parretti appears to be arranging financing, he still will face the problem of where to get capital for continuing operation of MGM/UA.

According to sources, a key bone of contention in the negotiations with Time Warner had been the fate of MGM/UA’s domestic theatrical distribution system. MGM/UA employees fear loss of their jobs in a scaled-down division under Warner.

“We (the studio people) are obviously all fighting to maintain our separate identity,” said one senior MGM/UA executive who asked for anonymity.

Analysts, however, do not expect Warner to absorb all of the 350 people involved in the domestic distribution of MGM/UA films and, instead, see the division operating more like a marketing unit working for Warner Bros. on MGM/UA releases.

“People are nervous,” acknowledged Richard Berger, president of MGM/UA Film Group. “Some people were hoping Pathe could pull it off and yet maintain the domestic distribution channels.”

In addition, since Warner Bros. would be taking over distribution of MGM/UA pictures overseas, MGM/UA would no longer need to be part of its overseas distribution company, United International Pictures, a joint venture with Paramount Pictures Corp. and MCA Inc. Sources said MGM/UA would remain part of UIP until its current partnership agreement expires in September, 1991.

Warner Bros. currently holds the overseas home video distribution rights on the UA library through its Warner Home Video unit, but that agreement is set to expire in Nov. 30, 1991. MGM/UA Home Video Inc., the studio’s home video division, holds domestic distribution rights to the UA film library and about 35 MGM motion pictures made since 1986 as well as home video rights to the Turner/MGM library of old MGM and Warner Bros. films now owned by Turner Broadcasting System Inc.

The agreement with Turner, which receives a royalty fee from MGM/UA Home Video for the distribution rights, expires in the year 2001. At that time the library, including home video rights to 2,950 pictures such as “Gone With the Wind,” “Singing in the Rain,” and “Casablanca,” reverts back to Turner.