MGM/UA Could Cost Parretti More Than $1.3 Billion

Italian financier Giancarlo Parretti, who advanced closer to his goal of acquiring MGM/UA Communications Co. on Thursday by paying the last $50-million deposit owed on the studio, may be in for a case of sticker shock when the final cost of the deal is tallied.

MGM/UA’s price tag, set at $1.3 billion, could rise by as much as $200 million if former shareholders in the company win a class-action suit set to go to court on Monday.

A curious clause in the merger agreement between Parretti’s Pathe Communications Corp. and MGM/UA states that Pathe is liable for any financial damages that may result from the class action, should Pathe succeed in acquiring MGM/UA. One attorney who is familiar with corporate contracts called the indemnification agreement “staggeringly broad.”

Attorneys said the indemnity fully protects MGM/UA majority shareholder Kirk Kerkorian and his Tracinda Corp. from damages. Kerkorian and Tracinda were left as the lone defendants in the suit when MGM/UA’s insurers settled on behalf of the remaining defendants last week.

Pathe’s attorneys had no comment on the indemnity agreement other than to confirm its existence.

The shareholder suit arose from the 1986 sale of MGM/UA, then known as MGM/UA Entertainment Co., to Turner Broadcasting. Minority stockholders contend that Kerkorian undervalued United Artists, then reacquired it at a sweetheart price when he sold the parent company to Turner.

MGM/UA has denied any impropriety. Last week, however, four MGM/UA insurers reached a settlement agreement of $8 million to $20 million in the case that covers the studio, its directors and its former executives.

Pathe’s obligation to Kerkorian is detailed in a clause of the merger agreement that states that the purchaser of MGM/UA assumes responsibility for all “losses, claims, damages, costs, expenses, attorneys’ fees, liabilities or judgments” in connection with the case.

“Our review of the agreement indicates (Kerkorian) is covered by Pathe,” said James W. Mercer Jr., one of the shareholders’ lawyers. Kerkorian’s attorney, Terry Christensen, agreed.

Beverly Hills-based Pathe has until Oct. 23 to complete its acquisition of MGM/UA. Until then, Kerkorian and Tracinda are fully indemnified by MGM/UA.

With the latest $50-million deposit forwarded to MGM/UA on Thursday, Parretti’s non-refundable investment stands at $353 million. He has also pledged $75 million in securities to the $21.50-per-share purchase.

MGM/UA will present the merger agreement to its shareholders at an Oct. 2 meeting in Beverly Hills. Pathe has until Oct. 21 to inform the MGM/UA board of how it intends to finance the merger.

Many financial analysts remain doubtful of Parretti’s ability to swing the deal. Some reports have had the financier scouring the globe in search of the remaining $1 billion he owes.

Parretti has refused to disclose the possible source of the funds. In an interview set to air Saturday on television’s “Lifestyles of the Rich and Famous,” the Pathe chief maintained that he is wooing three influential sources as backers.