Kerkorian-Backed Group to Buy MGM

The fabled Metro-Goldwyn-Mayer movie studio and its roaring lion logo will be acquired for $1.3 billion by a management-led group whose main backer, billionaire Kirk Kerkorian, has already bought and sold the company twice.

Tuesday’s agreement was perhaps the strangest twist yet in a decades-long odyssey that has seen MGM plunge from its perch as one of Hollywood’s premier studios, lose many of its prized assets and fall briefly into insolvency. Hollywood critics frequently blame Kerkorian for dismantling the studio, a charge he has characterized as a bum rap.

MGM was put up for auction in March by Consortium de Realisation, an entity formed by the French government to dispose of assets owned by the troubled bank Credit Lyonnais, which seized MGM in 1992 after foreclosing on former owner Giancarlo Parretti. That bank was required by federal banking laws to divest itself of the studio by 1997.

The auction attracted the interest of half a dozen serious bidders, including the European entertainment giant PolyGram and media mogul Rupert Murdoch. The management group, led by MGM Chairman Frank Mancuso, was considered a dark horse: Kerkorian’s backing, which bolstered that of Australian broadcaster Seven Network Ltd., materialized only at the eleventh hour, and the group’s victory shocked many in Hollywood and on Wall Street.

Mancuso’s team led a three-year revival of the studio, with such hits as “GoldenEye,” “The Birdcage” and “Get Shorty.”

MGM, once ruled by such Hollywood legends as Louis B. Mayer and Irving Thalberg, created such classic films as “The Wizard of Oz” and “Singin’ in the Rain.” Despite its troubles, it remains one of the best-known names in entertainment. It also is one of a handful of companies capable of making and distributing major motion pictures, and still boasts one of the largest film libraries, with 1,500 titles that include the “Rocky” series, “Annie Hall” and the James Bond series.

Kerkorian first acquired MGM in 1969, and he added United Artists in 1981. He sold MGM/UA Communications in total to Turner Broadcasting System in 1986 for $1.5 billion. But months later, when Turner realized he couldn’t afford the deal, he sold most of the assets, including the valuable MGM logo and the UA library, back to Kerkorian, keeping only the 3,000-title MGM catalog, which included such movie classics as “Gone With the Wind .”

MGM’s historic Culver City lot--home of some of Hollywood’s most beloved musicals--was sold as part of the Kerkorian-Turner deal and is now occupied by Sony Pictures Entertainment. MGM is housed at a Santa Monica office park.

In 1990, Kerkorian sold what was left of MGM and United Artists for $1.3 billion to Parretti in one of Hollywood’s biggest financial debacles. Credit Lyonnais backed Parretti despite his having a lengthy criminal record. The bank seized the studio after Parretti defaulted on his loans, and is out an estimated $2.5 billion as a result of backing him.

In a statement, the reclusive Kerkorian said: “I’m extremely pleased with the good news. If this management team had been in place in 1990, I would never have sold the studio.”

Kerkorian’s fortune was estimated at more than $2 billion last year by Forbes magazine. Last year, he launched an audacious, ill-fated bid to buy Chrysler Corp. for $22.8 billion, and he remains Chrysler’s largest shareholder. Through his Tracinda Holdings, Kerkorian retains the right to use the studio’s name at his massive MGM Grand hotel in Las Vegas and plans to build a new MGM hotel and casino in Atlantic City, N.J.

MGM is the third Hollywood studio to change hands in the past three years, the others being Paramount Communications, sold for $10 billion to Viacom Inc., and MCA Inc., acquired for $5.7 billion by Seagram Co.

For Mancuso, who before heading MGM ran Paramount Pictures, emerging as the winner is especially sweet. Mancuso took over as chairman in 1993 at a time when the hit-starved studio was on the ropes. He recruited former talent agent Michael Marcus as head of its MGM Pictures unit and former Warner Bros. executive John Calley as head of United Artists Pictures.

By last year, a string of hits reestablished MGM as a major force in Hollywood. Still, Mancuso’s buyout bid was not taken seriously by most Hollywood executives. The betting was that PolyGram would walk off with the studio, with outside shots given to Murdoch and Morgan Creek Productions.

Mancuso’s team has been promised extensive autonomy, as evidenced by an unusual clause in the deal requiring that “certain major decisions” receive unanimous approval of MGM’s seven directors, including Mancuso.

In an interview, Mancuso called the MGM purchase the most “satisfying moment in my entire career.”

The sale price was on the low end of what the French had hoped to get. Initial expectation had been that the studio could fetch $1.5 billion to $2.5 billion. But bidders were wary of some unusual licensing agreements that MGM is burdened with, including one that would require the new owner to distribute its videos through Warner Bros. That deal was typical of the kind of transaction Parretti made during his brief tenure in order to raise desperately needed cash.

Kerkorian and Seven Network will split the voting of the company’s common stock, even though Kerkorian’s contribution is $700 million and Seven is putting up $250 million. Investment bankers at J.P. Morgan will raise the rest of the purchase price, along with about $450 million to help fund the studio’s ongoing operations.

Gary Rice, managing director and chief executive officer of Seven, said the network initiated talks with MGM about three months ago. “We felt Mancuso had done a good job in a short time and we were pretty impressed with the way the studio was turned around,” he said.

Steven Rattner, managing director of investment bank Lazard Freres, which handled the sale, said the French seller in the end “made its decision based on which proposal would result in the greatest amount of value being recovered.”

Mancuso said he and Kerkorian, whom he has known for 20 years--Kerkorian tried to hire him from Paramount to run MGM in 1982--share a vision of MGM, as a “growth company.” Mancuso also said the pair view the buyout as “an opportunity to take an entity that has been in business for 75 years and build on it.”

Responding to skepticism about Kerkorian’s involvement, Mancuso said: “He’s been a cheerleader, and then he stepped up and joined us.”

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