A Wounded Lion : Tarnished MGM Finds Itself on the Block


The lion hunt officially began Tuesday.

French officials finally gave the green light to sell the historic Metro-Goldwyn-Mayer studio and its owners hope to get from $1.5 billion to $2.5 billion, sources said, although there are no assurances that anyone will pay that much.

After suffering for years under owners who neglected the company, MGM today is only a fraction of the size of studio powerhouses Warner Bros., Walt Disney, Twentieth Century Fox, MCA, Paramount Pictures and Sony Pictures.

Still, Hollywood executives say MGM could be the last studio of significant size to be put on the block for years, something the sales pitch for the studio is expected to stress. That makes it especially attractive to a company seeking to enter the entertainment business for the first time or to those hoping to expand market share.

Known for its roaring lion logo, MGM was seized from Italian financier Giancarlo Parretti in 1992 by the French-controlled bank Credit Lyonnais after Parretti defaulted on his loans. The studio was then spun off to a newly created company--Consortium de Realisation--that was formed last year to sell off assets Credit Lyonnais had accumulated. Under U.S. banking laws, Credit Lyonnais had until next year to divest the studio.

The timing for the sale, being engineered by investment bank Lazard Freres, appears to be right. Although Wall Street analysts have cooled this year toward movie company investments, there is still widespread interest among many companies that want to be in the entertainment business.

MGM's value has been boosted by the performance of such films as "Species," "Get Shorty" and "The Birdcage" with Robin Williams, which debuted at No. 1 last week at the box office with a gross of $18 million. In addition, the company recently revived the lucrative James Bond franchise with the hit film "GoldenEye" starring Pierce Brosnan.

"MGM hasn't been this successful in many, many years," said Arthur Rockwell, analyst with Yaeger Capital Markets in Los Angeles and a former MGM executive.

With an infusion of funds from Credit Lyonnais and other loans, the studio's fortunes turned around under a team led by veteran studio chief Frank Mancuso, MGM Pictures chief Michael Marcus and United Artists head John Calley. Last year, the company released 15 films that grossed $333.2 million domestically, compared with seven films in 1992 that grossed $52 million.

Bidding is expected to take from three to six months, with the early Hollywood favorite being the European entertainment giant PolyGram. Disney may take a look, although executives caution that Hollywood's major studios will be put off because Warner Bros. holds MGM's video rights through the next seven years.

Another potential bidder is producer Arnon Milchan, whose production company is backed by Australian billionaire Kerry Packer and South Korean electronics conglomerate Samsung. Other possibilities include billionaire John Kluge, as well as MGM's management team if it can find a financial backer or consortium as a partner.

Sources close to the deal said there is no formal asking price, although executives believe that the French owners want a minimum of $1.5 billion and hope to get as much as $2.5 billion to narrow losses from the estimated $3 billion Credit Lyonnais sunk into the studio over the years.

Once Hollywood's premier studio when it was ruled by such legendary moguls as Louis B. Mayer and Irving Thalberg, MGM three years ago was nearly dormant and out of cash. It had been stripped of its studio lot--now Sony Pictures Entertainment--and of such film classics as "The Wizard of Oz" and "Gone With the Wind" after sales engineered by former owner Kirk Kirkorian.

The company has, however, retained the extensive United Artists library--although the library's value has been tarnished because Parretti sold off video distribution rights for extended periods to raise cash.


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MGM Assets

MGM is no longer the dominant force it was in the studio world. The MGM library was sold to Ted Turner in the 1980s, the studio lot is gone, and the company is still recovering from years of underinvestment and financial mismanagement. It made a strong turnaround last year, however, and it still has assets that could make it an attractive investment:

The Name: The MGM name, with its rich history, is one of the most recognizable in the entertainment world, and Walt Disney Co. uses it at a Florida theme park.

Film Production and Distribution: It is one of a handful of companies able to finance, produce and distribute a full slate of movies domestically. It also is a partner in United International Pictures, which distributes the films of MGM, Universal and Paramount. Its latest is the No. 1 box-office hit "The Birdcage."

Library: The company has Hollywood's fifth-largest film library, with a total of 1,559 titles, including those of United Artists and post-1986 MGM. (There are 17 James Bond movies, five "Rockys" and eight "Pink Panthers," as well as "Annie Hall," "Raging Bull" and others.) The library also has several thousand hours of television programming.

Television: Two series in first-run syndication ("The Outer Limits" and "LAPD"), commitments from Showtime Networks Inc. and several equity investments in foreign television platforms.

Video Distribution: Videos are distributed through Warner Home Video under an agreement that will continue for seven more years.

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