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Pathe Fails to Line Up Time Warner Backing In Bid for MGM/UA : Entertainment: The Beverly Hills-based company is left with half the funding it needs for the $1.3-billion buyout. It has begun searching for another partner.

TIMES STAFF WRITER

Pathe Communications Corp. confirmed Thursday that negotiations with Times Warner Inc., its chief financial backer in its planned $1.3-billion purchase of MGM/UA Communications Co., have collapsed. Pathe said it is seeking “alternative” sources of support for the deal.

The disclosure, which had been expected for several weeks, leaves Pathe with less than half of the funding needed to complete the acquisition. A company spokesman said Pathe would try to find a partner to replace Time Warner, which had pledged $650 million to the purchase.

“Despite how this will be perceived, Pathe is still confident they can do the deal,” said company spokesman Craig Parsons. He refused to elaborate, however, on the company’s plans.

Time Warner, which in the past has denied that the deal was in trouble, issued a terse response: “We have just seen Pathe’s press release, and we are studying its implications.”

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Pathe, which was supposed to complete the MGM/UA acquisition last week, was granted a four-month extension after it was unable to come to terms with Time Warner. In return, Pathe agreed to increase its non-refundable deposit toward the purchase by $100 million, to $300 million.

MGM/UA said it was not surprised by the announcement regarding Time Warner. “We have said all along our agreement is with Pathe, and we have what is a very good agreement for our shareholders,” said spokesman Scott Tagliarino. “Over the last two weeks, Time Warner’s relationship with Pathe has been in question, so we don’t believe this is anything earth-shattering.”

Earlier Thursday, Pathe and MGM/UA announced that they had reached an agreement under which the two companies would merge, if Pathe can find the financing needed to complete the deal.

The agreement provides that MGM/UA stockholders will receive $4 per share on July 20, with the remaining $17.50 per share to be paid when the acquisition is completed. The major beneficiary of the advance payment would be MGM/UA majority shareholder Kirk Kerkorian, who owns 72% of the company.

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The extent of the damage done by the breakdown in talks with Time Warner remains to be seen.

Analysts said it’s doubtful that Pathe can recruit another major studio as a partner if it was unable to satisfy Time Warner’s demands. One entertainment executive suggested that Turner Entertainment Co., which already owns the MGM library, might step in to gain access to the United Artists library for its cable channels. The company denied knowledge of such a deal.

Time Warner had agreed to loan Pathe the cash needed to complete the purchase in return for the distribution rights to the United Artists library and future MGM/UA and Pathe releases.

The loan was contingent on the Beverly Hills-based Pathe and its partners providing $600 million in equity toward the purchase. Instead, Pathe offered up a financing package composed of a patchwork of short-term loans, asset sales and the possible resale of some MGM/UA stock.

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