The French owner of Metro-Goldwyn-Mayer on Sunday announced an ambitious plan for reviving the historic but beleaguered film studio with a new management team and a commitment to more than double the financing for movie and television production.
Former Paramount Pictures Chairman Frank G. Mancuso was named to head the studio. He replaces Alan Ladd Jr., who was fired in an angry standoff with Credit Lyonnais, the French bank that owns MGM.
Bank executives hope that the moves will alleviate MGM's long-term financial problems and restore its credibility after decades of decline. The plan, which calls for Credit Lyonnais to provide $400 million annually to the studio and forgive about $800 million in debt, should also provide a shot in the arm for the recession-plagued Hollywood economy because more executives will be hired and more projects will be undertaken.
Sources close to the talks say bank executives, under intense pressure in France to stem the studio's financial bleeding, resolved MGM's fate during a series of harried meetings in Beverly Hills that ended this weekend. Creative Artists Agency, the bank's adviser, put the deal together. Several scenarios, including outright liquidation of MGM, are said to have remained on the table until the final hours.
Mancuso's appointment as chairman and chief executive officer of the newly constituted MGM Inc. has long been rumored. The 60-year-old executive is known for being skilled in marketing, which has been one of MGM's weaknesses. He also has close ties to big-name actors, directors and producers, which may help in attracting quality projects to the studio. The terms of his deal were not disclosed, although Mancuso was said to be holding out for a rich salary and benefits package.
Ladd could not be reached for comment Sunday, but sources close to the studio said he was fired after refusing to accept a subordinate position to Mancuso. Allen Susman, Ladd's lawyer, said the bank terminated him "admittedly without cause."
Late Sunday, sources close to Ladd indicated that he was considering a wrongful termination suit, although public documents indicate that he stands to receive more than $5 million in severance pay.
Coincidentally, the moves came the same day MGM employees gathered for a morale-boosting picnic at the Calamigos Ranch in the Santa Monica Mountains. The mood was described as tense because of the uncertainty surrounding the company.
In a prepared statement, Mancuso said he will work with MGM employees "as a team." At the same time, he is widely expected to bring in new senior management.
One of his first tasks will involve finding executives to run the separate MGM and UA production divisions, sources said. One rumor has Mancuso moving over several former Paramount colleagues.
Credit Lyonnais, which is controlled by the French government, inherited MGM two years ago, after Italian financier Giancarlo Parretti defaulted on more than $1 billion in loan payments shortly after acquiring the studio from financier Kirk Kerkorian. Under U.S. banking laws, Credit Lyonnais is required to sell the studio by 1997.
Discussions of MGM's fate were dogged in recent weeks by rumors of an outside bid by the Midwestern grain and commodities giant Cargill Inc., which were flatly denied by the parties involved.
Creative Artists Agency spoke to several possible buyers about the studio and offered several management possibilities.
One complication was MGM's deep-rooted financial problems. Hollywood executives estimate that the bank is losing up to $1 million a day on MGM. CAA Chairman Michael S. Ovitz on Sunday called the bank's decision to rebuild the studio "enlightened pragmatism."
"The bank can now add substantial value to their unique asset and the creative community has two additional marketplaces for their films and programming," Ovitz said.
The costly new strategy puts a lot of faith in the abilities of Mancuso, who was responsible for such hits as "Top Gun," "Ghost" and "Crocodile Dundee" before leaving Paramount in an acrimonious 1991 management shake-up.
Credit Lyonnais' new MGM credit line of $400 million annually significantly ups the current $190 million. In addition to forgiving about $800 million in debt, the bank will take over responsibility for $35 million a year in bond interest payments, which could encourage more outside investment.
Sources say the strategy is analogous to fattening a pig before the slaughter. With new technologies increasing the demand for entertainment programming, the bank hopes to fatten MGM enough to attract a buyer.
"If they can restructure the balance sheet and make it healthy, there will be a huge sale down the road where they can recoup their debt," said one Hollywood executive who asked not to be named. "It's supply and demand. If Paramount is sold, MGM will be the last (available movie studio) on earth with a big library."
Lisbeth Barron, an entertainment analyst at S.G. Warburg & Co. in New York, said the bank had few other options, given MGM's financial morass. Under Kerkorian, much of the valuable MGM film library was sold off, which has put a drag on earnings because libraries provide a stable source of income. But at sister company United Artists, the library of 1,200 titles--including the James Bond, Pink Panther and Rocky movies--remains.
"Obviously, things will depend on the management team," Barron said. "But they're clearly playing this out now for the next few years."
Francois Gille, director general of Credit Lyonnais, said the moves underscore the bank's commitment to MGM. Rebuilding MGM "is the best way to maximize the value of our investment," he said in a prepared statement.
Under the restructuring plan, MGM and United Artists will be run as separate production companies, much as Columbia Pictures and TriStar Pictures operate under the management of Sony. Marketing and distribution will be handled centrally under Mancuso's supervision. Sources said the company hopes to release 25 films a year within two years, which would put it in line with the other major studios.
MGM, which is releasing 13 films this year, has had one of the worst track records in Hollywood recently, with a 2.3% market share as of last week. Its last high-profile hit was "Thelma & Louise" in 1991.
Sources familiar with the company said only two of its recent films--"Benny & Joon" and "Untamed Heart"--are certain to make a profit amid scores of such box office disappointments as "Body of Evidence," a critically panned film starring Madonna that MGM executives had been counting on to be a big hit.
These days, after running through a steady succession of managers over the last two decades, MGM is largely known for its distant past. Efforts to revive the studio behind "The Wizard of Oz" have failed, leaving it little more than a shell. The company operates out of a Santa Monica office complex. The fabled MGM lot in Culver City is now home to Sony Pictures Entertainment.