MGM Cuts IPO in Deal With Tracinda

Metro-Goldwyn-Mayer Inc. reduced the size of its initial public offering by agreeing to sell about $75 million worth of stock to Tracinda Corp., the holding company controlled by billionaire Kirk Kerkorian.

Tracinda, based in Las Vegas, already ranks as the largest shareholder of MGM, whose motion picture studios have produced such movies as “Annie Hall,” “Platoon” and “West Side Story.”

The company paid about $875 million to acquire the equivalent of 36.45 million MGM shares in October 1996.

MGM filed documents with the Securities and Exchange Commission on Monday stating that Tracinda will buy about 3.5 million of the 12.5 million shares originally allotted for the IPO. At least one money manager said MGM entered into these arrangements because it was having trouble generating enthusiasm among investors.

“I don’t think demand [for the IPO] has really been good,” said Marvin Roffman, president of Roffman Miller Associates, a Philadelphia-based money management firm with about $90 million of assets under management.

Santa Monica-based MGM produces movies and television programs through subsidiaries such as Metro-Goldwyn-Mayer Studios Inc., United Artists Corp. and Orion Pictures Corp. The company’s entertainment library includes 4,000 film titles and more than 8,200 episodes of TV programming.

Roffman said MGM is a risky bet because costs are running out of control in the movie industry. He also noted that MGM is heavily indebted, with about $796 million of borrowings as of June 30.

MGM plans to use the proceeds from the IPO and the shares sold to Kerkorian to reduce debt. A company spokesman said Monday that Kerkorian is buying more MGM stock through Tracinda because he believes the shares represent a bargain.

Tracinda paid about $24 a share for its initial stake in MGM. However, MGM plans to market its shares to the public at $20 to $23 each and will set the exact price on the day of the IPO.

Under its $75-million commitment, Tracinda will pay the price set for shares sold through the IPO. As a result, Tracinda will get to buy MGM stock at a discount to its original investment price, according to MGM spokesman Craig Parsons.

This is a way for Kerkorian to average down his cost basis, Parsons said. “He sees opportunity and value.”