MGM to Buy Metromedia in Deal Valued at $573 Million

Metro-Goldwyn-Mayer said Monday that it agreed to buy billionaire John Kluge’s beleaguered film and television operations in a $573-million deal that will elevate MGM’s entertainment library to one of Hollywood’s largest.

MGM, which itself was bought for $1.3 billion last year by billionaire Kirk Kerkorian in partnership with Australia’s Seven Network, plans to acquire Kluge’s Metromedia International Group for $373 million in cash and will assume $200 million in debt that MGM’s investment banker, J.P. Morgan, will refinance.

MGM’s main goal was to get its hands on the library of Metromedia’s Orion films, which will help the company boost its cash flow and give MGM executives the chance to exploit the library by developing new television programs and film projects based on popular old movies and shows. It also gives the company more films and programs that it can package and sell as new technologies such as satellite television and digital videodiscs proliferate.

For its money, MGM gets 2,200 film and TV titles, including such Oscar-winning Orion films as “Silence of the Lambs,” “Dances With Wolves” and “Platoon.” Also included are such non-Orion titles as “The Madness of King George,” and such Hollywood classics as “Guys and Dolls,” “The Best Years of Our Lives” and “Wuthering Heights.” TV shows include “Mr. Ed,” “Green Acres” and “Cagney & Lacey.”

“This is the biggest library opportunity out there,” said J.P. Morgan Managing Director Kenneth S. McCormick, who advised MGM. “This library has lots of hidden jewels that can be mined for future opportunities.”

Less clear is what happens to the Metromedia production and distribution companies included in the deal, such as distributor Orion, specialized film company Goldwyn Entertainment Co. and Motion Picture Corp. of America, producer of such films as the hit comedy “Dumb and Dumber.”

MGM Chairman Frank Mancuso confirmed that Kluge did not want to just sell the library, but the entire package. MGM will buy 12 finished films and five video features it can release in the future.

Mancuso said that because of the negotiations, he hasn’t had time to fully evaluate the future for the nonlibrary assets MGM is buying, although some analysts expect the company to scale back, or eliminate, much of the production and distribution operation because MGM already has that.

With the acquisition, MGM’s library will include more than 3,600 titles, which the company said is the largest library of post-World War II films in Hollywood. Mancuso said that the library is relatively unencumbered, meaning it is free of the kind of previous legal entanglements and deals that might limit MGM’s ability to exploit it.

The only movie-related assets not being sold in the deal is Metromedia’s 138-screen Landmark Theatre Group, which it acquired when it bought the Samuel Goldwyn Co. last year. Analysts expect that Metromedia will seek a buyer for the chain in a separate deal.

When final, the sale, which still requires, as a formality, approval by Metromedia stockholders later this year, will end a disastrous run in Hollywood for Kluge. The 82-year-old Virginia tycoon first invested in Orion in 1986 as a favor to the late Orion Chairman Arthur Krim while Krim was fending off advances from Viacom Inc., which now owns Paramount Pictures. Kluge gained a majority stake in 1988.

Kluge steered Orion through bankruptcy proceedings after the studio was hammered by high overhead, a string of flops and a huge debt load. Since emerging from bankruptcy proceedings in 1992, Orion has been an also-ran at the box office and generated little attention for its films.

Hollywood executives have suggested for some time that they expect Kluge would divest Orion and his other film assets, given the right opportunity.

But his acquisition last year of Goldwyn and Motion Picture Corp. of America seemed to suggest the opposite, and his executives insisted he was not a seller. Still, Hollywood executives speculated that he was “bulking up” the company for an eventual sale.

Rumors of Kluge’s interest in selling to focus more on his extensive telecommunications operations heated up again at the start of the year and accelerated within the last three weeks as several major companies, notably European giant PolyGram, began seriously sniffing around. Sources said PolyGram was willing to pay about about 15% less than what MGM agreed to pay.

Despite the growing signs that Kluge was serious about getting out, some in Hollywood and on Wall Street continued to be skeptical that Kluge would take the final steps, speculating that he might just be testing the waters to see how much he could fetch. Potential buyers balked at Kluge’s asking price of at least $700 million and were also puzzled that he had neither hired an investment banker, nor circulated a “book” of financial information about the company.

According to sources, MGM became convinced that Kluge could be talked into selling when he filed a preferred stock offering for $425 million in a soft market. People close to Kerkorian speculated that Kluge would sell the entertainment assets in lieu of trying to raise the money in what could be a difficult offering.

Separately, MGM also announced it is licensing its film and TV shows to a unit of Germany’s Kirch Group for pay television rights in that country.