The Lion Must Perform a Tough Balancing Act

It’s hard enough putting movies together these days, let alone doing it when the studio that’s making, marketing and distributing them is up for sale. That’s the position the senior management team of Metro-Goldwyn-Mayer Inc. has found itself in ever since the venerable studio was officially put on the sale block in April.

Over the last several months, MGM Chairman Frank Mancuso, President Mike Marcus and John Calley, president of MGM sister company United Artists, have had to perform a tough balancing act.

With the aid of investment banker Lazard Freres & Co., the executives have been busy giving comprehensive presentations to potential bidders doing due diligence at their Santa Monica-headquartered studio. There’s been an average of two a week of these presentations, which are about six hours long, and the presentations will continue through Friday.

In addition to the dog-and-pony shows for prospective buyers, Mancuso and his team are exploring the possibility of mounting their own bid (with or without partners) for the studio, and have retained J.P. Morgan & Co. to help in the effort.

With these distractions, the executives have had to continue running a movie studio and turning a profit--no easy task in the best of times and under the best of circumstances.

Some industry insiders question whether it isn’t an inherent conflict of interest that Mancuso and his team are doing all this as they position themselves as a potential bidder.

“What’s their job? Is it self-aggrandizement or managing a company? Buying the company or putting pictures together?” asks one top industry executive who does business with the studio. “These guys are trying to protect their own self-interests right now.”

MGM management can’t comment because of the quiet period surrounding the sale. But a source close to the three insists that they have no advantage over other bidders when it comes to a sale. Mancuso simply has a contractual right to make an offer. Naturally, the executives, who had a mandate to fatten up the company for a sale when they joined it, stand to gain handsomely if the studio fetches the right price.

To their credit, since taking over nearly three years ago, Mancuso and his team have awakened the moribund studio (which had seven films in release when they started and has 18 this year) with hits such as “The Birdcage,” “Get Shorty,” “Leaving Las Vegas,” “Stargate” and “Species.” They also reinvigorated the studio’s James Bond franchise with the hit “GoldenEye” (which has grossed more than $350 million worldwide) and revived its dormant television division with series such as “The Outer Limits,” “Poltergeist” and “LAPD.” But along with the hits have come some misses, including “Wild Bill,” “Speechless,” “Tank Girl” and “Mulholland Falls.”

Before profits started coming in from the hits, management was faced with being tapped out of production funds after going through the initial infusion and subsequent $450-million credit line from Chemical Bank and associated lenders.

With the financial spigot turned off, no new movies were approved for production over the last five or six months. Because the studio has nothing in production now and only four films in post-production, any new owner--even if that happens to be Mancuso and his partners--will have a big problem: The studio’s release pipeline will be virtually empty for at least one quarter. Consequently, new ownership will have to immediately pour hundreds of millions of production dollars into the studio to get it back up to speed.

“The sad thing is whoever gets this prize--MGM--will be back where they started 2 1/2 years ago,” says a source close to the studio.

Presently, the studio has one movie, UA’s “Hoods,” to star Laurence Fishburne and be directed by Bill Duke, actually approved for production in June (for a planned Christmas 1996 release) and a small number of other projects in pre-production that are awaiting commitments from talent.

There are four movies scheduled for release between now and August. Because it has no other productions ready to come out later in the year, the studio just moved its Bill Murray film, “Larger Than Life,” out of the summer lineup to put it closer to Thanksgiving.

An MGM insider says there are about a dozen more projects that Mancuso and his executives want to make but that unless present management stays in place (either as owners or working for a new owner), it’s doubtful they’ll ever see the light of day.

According to Steven Rattner, managing director of Lazard Freres, “One of our tasks is to free up management as much as possible to do their job of running the company.” But Mancuso, Marcus and Calley have been burdened with the preoccupation of an impending sale.

Rattner points out that it’s “completely typical” for management to be involved in such a process.

But when has any other studio been put up for auction with the pressure of having to be sold by a certain time?

MGM is owned by an affiliate of Credit Lyonnais, the French bank that seized it from former owner Giancarlo Parretti in 1992, after he defaulted on his loans. Thus, under U.S. banking laws, it must be sold by May of next year.

Privately, MGM executives have admitted to sources that it’s been rough trying to conduct business as usual.

“It’s weird. It’s an awkward time. It’s not fun,” one says.

“Of course it’s distracting,” another admits.

Transitional periods at studios can’t be much fun. Filmmakers and stars are understandably reluctant to make movies at a place whose ownership and management appear uncertain.

None of this comes as a shock to Mancuso and his cohorts, who joined the company knowing they’d have a short period in which to turn the studio around before it got sold.

Still, it’s got to be a trying time.

Lazard--which was hired by Credit Lyonnais affiliate Consortium de Realisation to sell MGM--will not even begin listening to bids until late June or early July, at which time there will be a final cutoff date for all offers. A decision on a buyer is expected to be reached within a week of that deadline. The French government must then approve a deal, which would be expected to become final the fourth quarter of this year. Lazard is hoping to get between $1.2 billion and $2.5 billion for the studio.

Numerous parties have been kicking the tires, including all the usual suspects such as Walt Disney Co., MCA Inc., Viacom Inc. and Twentieth Century Fox. But the leading contenders, for the moment anyway, are two: PolyGram and producer Arnon Milchan’s New Regency, which is backed by Australian billionaire Kerry Packer, South Korean electronics giant Samsung and Warner Bros. Other likely bidders are Morgan Creek Productions and a consortium led by Los Angeles-based Capella Films.

With it all, various filmmakers with projects at MGM say they haven’t been ignored during this period.

“I’ve found them more aggressive than ever,” says producer David Foster, who along with Joe Vecchio is hoping to make “Wild Card,” the screen adaptation of the novel “Diminished Capacity,” with Robert Altman directing. (Granted, Foster’s son, Greg, is a senior production executive at MGM).

Trilogy Productions writer-director-producer Pen Densham, whose movie “Moll Flanders” is due out through MGM/UA on June 14, says: “It’s going to sound like puffery, but they’ve been incredibly decent and enthusiastic, and you would not know the studio is for sale.”

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MGM’s Comeback

In the nearly three years under its current management, led by Chairman Frank Mancuso, MGM/UA has turned itself around, producing a number of big hits. But it’s also has its share of flops. Notable films, with total domestic box-office receipts:

HITS:

“The Birdcage” ($117 million)

“GoldenEye” ($106 million)

“Get Shorty” ($72 million)

“Stargate” ($71 million)

“Species” ($60 million)

“Leaving Las Vegas” ($32 million)

MISSES:”Wild Bill” ($2 million)

“Fluke” ($3.7 million)

“Tank Girl” ($4 million)

“Mullholland Falls” ($10.8 million)

“Speechless” ($20 million)

Source: Exhibitor Relations Inc.