Metro Goldwyn Milchan : Jet-Setter Producer Wants to Become New Owner of Old Studio

Many in Hollywood’s inner circle are betting that producer Arnon Milchan--passionate financier behind such hits as “JFK” and “The Client” and mysterious international wheeler- dealer--could well end up owning MGM studio. That is, if he doesn’t get cold feet.

Milchan is one of many suitors lining up backers and evaluating just what MGM is worth before final bids are due on June 24 at 11 a.m.

Milchan may have a leg up on others because of his powerful relationships with foreign investors, his longtime dealings with MGM owner Credit Lyonnais Bank, and the backing of such formidable resources as Chemical Bank (which recently merged with Chase Manhattan Bank); Warner Bros., which distributes his New Regency films; and his company partners, Australian billionaire Kerry Packer and South Korean electronics giant Samsung.

Some suggest Milchan is a stalking horse for Warner to get control of the MGM/UA library. But sources close to New Regency say Milchan is anything but a front for Warner. They say Milchan is seeking another equity partner to keep Warner as far removed from being a direct investor in the deal as possible. Warner, which has video rights to the MGM library until 2003, has supposedly told Milchan it would contribute a few hundred million dollars in advances against future video and domestic theatrical distribution rights to help finance the acquisition.

Sources close to Milchan say his dream plan is to buy MGM, shave off as much as $100 million in annual overhead by shutting down distribution and releasing the films through Warner’s worldwide network, then in 18 months to two years (after paying back the debt) take a combined Regency/MGM public as an asset with dramatically increased value. Sources said Milchan would strip down MGM’s current management, bring in his top New Regency executives, former Tri-Star President David Matalon and ex-Columbia production chief Michael Nathanson.

Just before Packer came in as a partner in early 1994, Milchan was about to take New Regency public through Goldman Sachs. Packer stipulated that Milchan had to agree to run the operation for another 10 years and not take producer fees and other overhead expenses out of the company.

If Milchan’s plan to buy MGM falls apart, sources say, he may try to buy another studio--Sony--or take New Regency public.

(In the meantime, Milchan may also try to bail out fellow producer Andy Vajna--a close friend of Matalon’s--by buying his ailing production company, Cinergi Pictures. Sources say the plan would be for Vajna to produce two or three films a year that would be released by Warner.)

Like all the other potential bidders, Milchan most wants to get his hands on the 1,500-title MGM/UA library, which includes 17 James Bond films, the “Rocky” and “Pink Panther” movies, “West Side Story,” “Midnight Cowboy,” “Rain Man,” “Thelma & Louise,” “The Birdcage” and “Get Shorty.” It’s the largest post-1948 film library and fifth-largest library in Hollywood. Though it’s heavily encumbered, with many rights licensed off well into the next century, the library is highly valuable to a long-term player since those rights will eventually revert back to MGM.

Milchan wants to have more leverage in the world marketplace, which he could get from selling packages of the library movies--both the big hit “locomotives” as well as the less successful “fillers”--to broadcasters around the globe. As more satellite channels and other future delivery systems come online, the library becomes more valuable.

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MGM not only gives Milchan significant library titles, it enhances his production capacity. Currently, Regency produces six to eight films a year. MGM would give him another 10 to 12.

“When you go to sell packages, they want to know you make 12 to 15 films a year and [have] a library to back that up,” said one Wall Street source. “Otherwise you’re not taken seriously by the big international outlets.”

Even with the backing of his strategic partners, Packer, Samsung and Warner, sources say Milchan is looking to bring in at least one additional equity partner to engineer the deal. A source said Milchan wants to diversify his ownership base but not dilute his own stake. He is vehement about not letting his current partners gain more control, the source said.

Sources say Chase, the premiere bank lender to the entertainment industry, is willing to lend Milchan and his group $800 million to $900 million against the library as collateral. Sources say Chase, which advised Samsung on its New Regency stake, placed a value on New Regency of $860 million. Chase executives declined to comment.

While it’s still unclear, apparently even to Milchan and his partners, just how much the bank and each party will contribute, there’s no doubt that Warner’s role is the trickiest because of potential antitrust concerns. The studio can’t be a direct bidder and must be a minority partner in the venture. One way around it, sources say, is Warner’s plan to give Regency substantial advances for the video and theatrical distribution rights to MGM films at a reduced fee of about 10%. In its existing MGM video deal, struck by former MGM owner Giancarlo Parretti, Warner collects a 15% distribution fee.

Sources close to Milchan said he plans not only to put all Regency and MGM films out through Warner domestically but eventually internationally as well. The first step would be to pull MGM out of its three-way partnership with Universal Pictures and Paramount Pictures in overseas distributor United International Pictures. (UIP requires a year’s advance notice of such a move.)

Some believe Warner may be putting itself in a precarious situation with government regulators since the FTC is already breathing down its neck over the pending acquisition of Turner Broadcasting, which owns New Line, Castle Rock and Turner Pictures.

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Warner, which could stand to make substantial distribution fees in an MGM deal even at a reduced distribution fee, already collects about $80 million a year in fees from New Regency to release its films.

Unlike other potential bidders for MGM, which also include PolyGram and Morgan Creek, Milchan has told friends he is ambivalent about the whole idea of buying a studio. He’s said that while the businessman in him thinks MGM is a good gamble, the personal side of him hates the idea.

The 51-year-old Milchan, a 10th-generation Israeli born in Palestine who divides his time among Paris, Monte Carlo and Tel Aviv and spends only a few days a month in Los Angeles, is an active international businessman but not a corporate animal. Friends say he likes being a jet-setter who actually spends more time on airplanes than he does on the ground. They say he’s enjoying the success he’s built over the last 20 years and worries about jeopardizing his freewheeling lifestyle.

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Although he spends little time in Hollywood and lets Matalon and Nathanson run his company, Milchan is passionate about movies, loves reading scripts and hobnobbing with talent and enjoys visiting sets while jetting around the world. He signs off on every Regency project.

His company, which has been based at Warner Bros. for the last five years, has been highly profitable since 1992 with such box-office hits as “The Client,” “JFK,” “Under Siege” and “Free Willy.” Sources say the nearly debt-free company has about $300 million in equity and a $500-million credit line through two German banks led by Berliner Bank.

If Milchan pulls off a purchase of MGM, he’d be trading running a low-overhead company with zero bureaucracy for lots of debt and corporate headaches.

“ ‘I’ll have to put in the mix everything I’ve built. I have a great quality of life, why do I need this?’ ” a close associate said Milchan recently mused to him regarding his mixed feelings about buying MGM. Then again, the compulsively driven, highly competitive Milchan has never been known to pass up a seductive gamble.

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A Strong Contender for MGM

Arnon Milchan’s New Regency Productions is regarded as a serious contender to buy MGM studio, which will be sold to the highest bidder this summer. Many believe Milchan has the international clout and strong investor relationships to engineer the acquisition.

THE COMPANY

Name: New Regency Productions. Established in 1991, the Los Angeles-based, foreign-owned company produces 6-8 major films a year.

Biggest films: “The Client,” “Free Willy,” “Under Siege,” “JFK,” “Heat,” “Sommersby,” “Made in America.”

Upcoming films: “A Time to Kill,” “Tin Cup,” “Carpool,” “The Sunchaser,” “North Star.”

Ownership: Arnon Milchan owns 65.5% of the company; Australian billionaire Kerry Packer (27%) and South Korean electronics company Samsung (7.5%) are major investors.

Library: The company owns 70 to 80 titles, including “Natural Born Killers,” “Falling Down,” “The Mambo Kings,” “King of Comedy” and “Once Upon a Time in America.”

Distribution: Warner Bros. handles domestic theatrical distribution; New Regency handles all other distribution and international sales.

Employees: 75

Company worth: Sources say the company has been valued at $860 million, with $40 million in after-tax earnings last year on $400 million in revenue.

THE OWNER

Name: Arnon Milchan

Age: 51

Nationality: Israeli

Background: Grew up in Israel. Fought in Six Day War and Yom Kippur War. Began producing and financing films in his early 30s in Israel. First screen credit in 1977 as producer of “Black Joy.” Made TV producing debut in 1981 with ABC miniseries “Masada” with then-partner Sydney Pollack. Hollywood producing debut in 1983 with “King of Comedy.”

Businesses: Owns dozens of non-entertainment companies, primarily involved with chemicals, technology and agriculture. Milchan also has worked in arms consulting.

Estimated personal wealth: Reportedly has amassed a personal fortune of about $600 million.

Personal: Has three children. Homes in Paris, Monte Carlo, Tel Aviv and Malibu, where he spends only a few days a month.

Sources: Exhibitor Relations; industry sources.