Pathe Makes New Payment on MGM/UA

Despite held breadth among skeptical observers, Pathe Communications Corp. on Monday made an additional $53-million down payment toward its planned purchase of MGM/UA Communications Co.

If Pathe had not met Monday’s deadline for the payment, it would have forfeited $200 million already placed in an escrow account as partial payment in the $1.3-billion bid for the movie studio.

The $253 million now in the escrow account will be used to fund a $4-per-share payment to MGM/UA shareholders scheduled for Friday.

Although Pathe has until Oct. 23 to complete the acquisition, it still faces several hurdles. First, it must make two additional non-refundable deposits of $50 million apiece, by Aug. 21 and Sept. 20, respectively.

Second, and more important, Pathe must also find a financial backer to replace Time Warner Inc., which withdrew its offer of a $650-million loan after Pathe was unable to produce its share of the financing in the form of equity. Time Warner then sued Pathe over the collapse of the deal, and last week, Pathe countersued for $500 million, claiming breach of contract.

Pathe’s still-uncertain ability to close the deal comes as MGM/UA reported last Friday continuing losses during the second quarter.

For the quarter ended May 31, MGM/UA losses deepened to $21.1 million from $7.15 million in the year-ago period. Operating revenue was down 44% to $148.4 million, which MGM/UA attributed to the “expected and previously disclosed decrease in the number of feature films this year.”