Pathe Closes Long-Delayed MGM/UA Deal

Hollywood’s historic film studio MGM/UA Communications Co. was acquired Thursday by Italian financier Giancarlo Parretti in a patchwork deal valued at $1.36 billion.

The terms of the oft-delayed buyout were not revealed, but Parretti’s Pathe Communications Corp. reportedly put the deal together with a complex package of loans and advances. The new company, the third major Hollywood studio to be controlled by foreign interests, will be named MGM-Pathe Communications Co.

“Ha! . . . Bravo for him,” said company spokeswoman Arlene Cattani of Parretti’s success in completing the deal that skeptics had contended would never be done. MGM/UA marked the deal, eight months in the making and the subject of several lawsuits, by delivering a live, 400-pound lion to Parretti’s office.

The buyout puts a wrap on the 21-year reign of MGM/UA majority shareholder Kirk Kerkorian, who had tried to sell the studio for two years. Kerkorian made $996 million from the sale.

Leaving MGM/UA “saddens me a lot,” Kerkorian told The Times shortly before the deal closed. He acknowledged that the company was in a weak competitive position against bigger media conglomerates such as Sony Corp. and its Columbia Pictures subsidiary. “You’ve got to be in hardware today, you’ve got to be in satellites, you’ve got to be in manufacturing home videocassettes and in theaters. That’s what it’s all about these days,” he said.

Parretti, whose conquest was set back several times by false starts and funding problems, assumes the title of co-chairman and chief executive at MGM-Pathe. His longtime business partner, Florio Fiorini, will serve as co-chairman. Rounding out the troika is former Cannon Group boss Yorum Globus, who will be president and chief operating officer.

Parretti said, in a prepared statement, that he will develop the kind of product that has made the MGM name “legendary for generations.” But MGM is hardly the titan of old.

The company, best known for the roaring “Leo the Lion” logo that precedes its films, has captured only 1.4% of the domestic box office so far this year and has already been largely dismantled by Kerkorian, who sold the Culver City studio lot and the MGM film library. MGM produced such classics as “Gone With the Wind,” “The Wizard of Oz” and, in the Kerkorian years, had occasional hits such as “Rain Man” and “Moonstruck.”

An MGM/UA spokeswoman said the logo would continue to be used exclusively by the company, adding that the logo will have no connection to the stylized lion logo used by Kerkorian’s MGM Grand airline and hotel company.

Pathe is expected to divulge its financing to the Securities and Exchange Commission by next week. So far, the company has said only that it will receive about $700 million of the purchase price from the sale of its assets to MGM/UA, which in turn has raised at least part of the money by selling long-term rights to the MGM/UA and Pathe film libraries.

Turner Broadcasting System Inc. and Time Warner Inc. agreed to pay more than $325 million for certain rights over a period of more than 10 years. But it remained unclear who provided the balance of the $700 million or whether any banks assisted in the financing.

Beverly Hills-based Pathe has said that the balance of the funds came from transactions with European investors, which reportedly include Pathe affiliates.

Jeffrey Logsdon, an analyst with Seidler Amdec Securities in Los Angeles, said the MGM/UA acquisition “breaks all the records for investment banking ingenuity.” Logsdon said it’s highly likely that further MGM/UA assets will be sold to pay any debt that Parretti might have incurred.

“Clearly there’s a financial mandate for de-leveraging, especially with these guys,” Logsdon said. “Some assets have got to be sold and some movies have got to work. They could sell the TV division. It’s not doing poorly at all. So they’ve got some latitude.”

Despite the instability caused by years of asset sales, MGM/UA has retained a presence in network television. It has four series on the networks, including “thirtysomething” and “The Young Riders,” and is scheduled to reprise “Dark Shadows” for NBC early next year. MGM/UA also is developing a series for CBS based on the studio’s “Pink Panther” movies.

David Gerber, chairman of MGM/UA Television Productions Inc., said he was glad the sale was finally over. The corporate turmoil has taken its toll, he said, adding that “over the years, we’ve lost talent and had a hard time convincing the agents to work with us.”

Gerber said Parretti and MGM/UA Chief Executive Jeffrey Barbakow told him in recent meetings that the television division would not be sold. Parretti, said Gerber, “talked with a global understanding of where broadcasting has to go.”

Analysts say MGM/UA’s chances of remaining solvent may largely depend on the performance of the 11-picture film schedule that Pathe has developed. One top financial analyst, who asked that his name not be used, said MGM/UA will be even more pressured than other studios to come up with box-office winners. “If those pictures do not attract box-office success, you’d be looking at a severely wounded or impaired company,” the analyst said.

Pathe also must contend with lawsuits filed by two top producers, Alberto Grimaldi (“Last Tango in Paris”) and the producers of the James Bond films, who contend that their profit participations will be sharply curtailed under the buyout. In his suit, Grimaldi has claimed that Pathe had sold rights to MGM/UA films to an array of foreign buyers, and has borrowed as much as $650 million against the contracts from Credit Lyonnais Bank Nederland. Pathe is contesting the lawsuit but hasn’t commented on the specific claim.

Under an earlier plan, Pathe had raised a substantial portion of its buyout financing through short-term loans and advances that it expected to retire by selling $300 million or more in new common stock.

It isn’t clear whether any such plans lay behind the current buyout, although a new share offering would be extremely difficult in a market that has battered the stock of even such solid entertainment companies as Paramount Communications Corp. and Walt Disney Co.

The merger represents a marriage of two companies that have been struggling. For the nine months ended May 31, MGM/UA posted a $32-million net loss. Pathe made a $1.3-million profit for the last six months before an extraordinary credit.

While Pathe brings such upcoming films as “Russia House” to the table, the combined companies will now have to come up with millions of dollars to cover the cost of marketing those films, as well as a bare minimum of $100 million to produce even a modest slate of big studio-quality movies over the next year.

Pathe representatives have said they expect to have ample funding to produce and market films, largely from existing bank credit lines. But they haven’t detailed future film plans.

Alan Ladd Jr., a 52-year-old film veteran and Pathe’s current film chief, will head movie-making operations for the combined companies.

Richard Berger, who has headed MGM/UA’s film operation since Ladd quit in a falling out with Kerkorian two years ago, said he wasn’t sure if he would remain with the company. “Laddie’s said they’d like to find a place for me. But I don’t know,” Berger said in a telephone interview after the merger was announced.

Berger said he expected staff cuts of 100 employees in MGM/UA’s home video unit and other cuts in the film production staff. But he said the marketing and distribution departments might actually expand to handle the dozen or so films Pathe has produced and now expects to release through MGM/UA.

“This is very sad for a lot of people. They’re not going to have jobs. . . . The business is contracting,” Berger said.

In the last several years, the film industry has seen Tri-Star Pictures and Columbia Pictures combined into Sony’s Columbia Pictures Entertainment, and the collapse of independent movie companies such as the Lorimar Telepictures film unit and Weintraub Entertainment Group.

Pathe was formed in 1989 when various European companies controlled by Parretti and Fiorini took control of what was then known as Cannon Group. Cannon had long produced low-budget films and made a largely unsuccessful attempt to produce big-star vehicles under its top executives, Globus and Menachem Golan.

MGM/UA’s sale has been contemplated for years. The Australian-based Qintex Group agreed to buy the studio for $1.5 billion last year. The deal fell apart, however, when Qintex was un able to secure financing. Qintex was subsequently forced to file for bankruptcy.

Turner Broadcasting System purchased MGM/UA for $1.5 billion in 1986 but immediately sold back most of the company to Kerkorian, keeping the MGM film library for use on his cable television services.

Kerkorian declined to say what he plans to do with his share of the proceeds from the sale, though it is widely assumed that he will use it to build his planned Las Vegas casino and theme park. “Whatever it is, we have to wait and see,” he said.

Times staff writers Robert E. Dallos, David J. Fox and John Lippman contributed to this story.