Producer Sues Over Terms of Deal for Sale of MGM/UA

The producer of such hit films as “Last Tango in Paris” and “The Good, the Bad and the Ugly” challenged the proposed $1.2-billion sale of MGM/UA Communications Corp. in court Wednesday, claiming that he will lose future profits from his motion pictures if the deal goes through.

Alberto Grimaldi’s suit in U.S. District Court in New York charges that Pathe Communications Co., which is trying to purchase MGM/UA, will be saddled with too much debt to meet its obligations to producers and others with financial interests in the company’s film library.

Named in the suit with Pathe are MGM/UA, Time Warner Inc. and its subsidiary, Warner Bros. Inc.

The suit specifically alleges that too much of Pathe’s future income has been pledged to Time Warner, which has agreed to loan $650 million to Pathe for the MGM/UA deal. In exchange, Warner Bros. would receive distribution rights to the MGM/UA library and future MGM/UA and Pathe film releases.

Grimaldi asked the court to revoke MGM/UA’s distribution rights to his 23 films under studio control. He also petitioned the court to designate the case a class action so that others with stakes in the film library will be covered by the suit.

The library includes the Pink Panther, Rocky and James Bond series, as well as “Raging Bull,” West Side Story,” “Some Like It Hot,” “Annie Hall,” “One Flew Over the Cuckoo’s Nest” and “Fiddler on the Roof” among its 1,100 titles.

“MGM/UA is going to be an empty shell with no assets for anyone, including the junk bond holders,” Grimaldi said in an interview, noting that Pathe would surrender the distribution rights to both the film library and future releases. “So how are they going to pay us? You don’t need a magnifying glass to see that after this transaction, (they) remain with no assets at all.”

Pathe, which on Tuesday formally extended its tender offer for all outstanding MGM/UA shares until June 7, issued a brief written denial to Grimaldi’s allegations. “Pathe has the intention of creating a strong, unified and viable company that will honor the obligations of all its constituents,” said Theodore J. Cohen, Pathe’s executive vice president and assistant general counsel. “Time Warner’s involvement will serve to strengthen the enterprise.”

All other parties declined comment pending further review of the case.

The suit sparked interest among filmmakers with movies in the MGM/UA library, however. Tony Adams, president of Blake Edwards Entertainment, which produced the Pink Panther films, said the case warrants attention. “Obviously we’re concerned, but we don’t have enough information to have any real comment at this time,” Adams said. “It’s something we’re watching closely.”

Motion picture producers typically are paid a percentage of the profits earned on their films by major studios. Grimaldi said his agreement with MGM/UA entitles him to 50% of the net profits realized from movies he made between 1965 and 1984, after distribution fees and other costs are subtracted. Grimaldi said he has made as much as $500,000 a year under the agreement.

An Italian citizen who has enjoyed success with both domestic and foreign films, Grimaldi said he asked Pathe co-founder Giancarlo Parretti in a meeting last month to sell him back his films but Parretti refused. Parretti could not be reached for comment on the case.

Under the terms of its six-year loan agreement, Pathe must pay Time Warner $60 million a year plus accrued interest, or 65% of its gross film receipts after distribution fees are subtracted, whichever is greater.

A studio customarily charges a 30% to 40% fee for distributing a film domestically and abroad, though the fee can be as high as 80% for videocassette distribution. Grimaldi contends in his suit that Time Warner will be entitled to more than 75% of all revenue from Pathe films when distribution fees are combined with loan payments.