Time Warner, MGM in Talks

Time Warner Inc. just shed the initials “AOL” from its name. But will it add the letters “MGM” to its portfolio?

Sources said the New York media giant has held “very informal and very preliminary” talks with Los Angeles film studio Metro-Goldwyn-Mayer Inc. about a possible combination that would bolster Time Warner’s film library.

MGM would not comment on potential merger talks, reported in Thursday’s Variety. But sources close to the company and Time Warner executives downplayed them.

“We are not negotiating with MGM,” said Barbara Brogliatti, a spokeswoman for Time Warner’s Burbank-based Warner Bros. studio.

Other Time Warner sources went further, noting that Chairman Richard D. Parsons is making cable acquisitions a chief priority as he continues to whip the company’s debt-loaded balance sheet into shape.

“I don’t see anything happening here. The big focus is on cable,” one source said.

Michael L. Savner, media analyst at Banc of America Securities, agreed, saying a major cable operator such as Cablevision Systems Corp. is more likely to be in Time Warner’s sights. “If they were to do anything, they probably would do cable over content,” Savner said.

Another source close to the talks said one indication of their preliminary nature was that MGM continues to move forward with its tender offer for as many as 10 million of its shares. If a deal is in the works, the source said, the tender offer probably will be shelved.

Most analysts agree that a combination of the two companies could make sense.

MGM is now debt-free and has reaped the benefits of the DVD explosion by exploiting its library of some 4,000 films and 10,000 TV episodes. MGM’s library includes the James Bond franchise, as well as such movies as “Midnight Cowboy,” “Rain Man” and more recent hits such as “Legally Blonde” and “Barbershop.” The company’s library also could be used by a media giant to further develop, or launch, cable networks.

Analyst Jeffrey Logsdon of Harris Nesbitt Gerard estimates that the two companies could save $200 million to $300 million in overhead if they meshed.

“It’s no surprise the companies have at least discussed it,” Logdson said. “You can see a scenario where this looks interesting for either party.”

Analysts say other media giants could be interested in MGM’s library, including Viacom Inc. and Walt Disney Co.

Time Warner shares rose 33 cents, or less than 2%, to $17.87; MGM rose 80 cents, or 5%, to $17.05, both on the New York Stock Exchange.