Financing May Snag Sony’s Bid for MGM

Sony Corp. is having trouble finalizing its prospective $5-billion bid for Metro-Goldwyn-Mayer Inc. and is struggling to work out the details of a complicated financing formula, people familiar with the situation said.

That hitch probably means that any decision on a formal offer could be put off until next month, they said.

What’s more, the Japanese electronics conglomerate, which once had exclusive negotiating rights for MGM, now finds itself with competition, giving the Century City-based movie studio controlled by billionaire Kirk Kerkorian more options and perhaps more leverage.

Time Warner Inc., which wooed MGM last year, is again considered a serious suitor, sources said, and General Electric Co.’s NBC Universal also is in the wings.

None of the companies would comment.

The speculation had been that a Sony-MGM deal could come as soon as Tuesday, the date of MGM’s annual shareholders meeting in Los Angeles. The studio had postponed the meeting, originally scheduled for May 12, as the talks with Sony intensified.

But the sources said Sony and its three equity partners -- Texas Pacific Group, Providence Capital Inc. and DLJ Merchant Banking -- have run into several snags.

One involves the logistics surrounding the financial arrangement. Also yet to be determined is how MGM would operate within the Sony corporate family. External factors -- such as uncertainty in the banking market and rising interest rates -- also have complicated matters.

The financing is tricky because Sony essentially wants to buy MGM in two steps. Seeking to initially keep the acquisition off its balance sheet so its debt rating won’t suffer, Sony would like its partners to put up the lion’s share of the money; Sony eventually would buy out its partners.

The sources said Sony was having difficulties spelling out how that arrangement would work, and how and when the partners would exit the deal. Meanwhile, the sources said, some executives at the Japanese company have become uneasy about paying $5 billion for MGM.

Sony’s top U.S. executive, Howard Stringer, two months ago sent a letter to MGM executives spelling out the contingent offer. Stringer said Sony and its partners would provide $1.5 billion in equity financing and that investment bank Credit Suisse First Boston would arrange $3.5 billion in debt financing.

MGM’s library of some 4,000 films -- including the James Bond franchise, the Pink Panther series and such notable titles as “Midnight Cowboy,” “Rain Man” and “Rocky” -- is considered a rare jewel. Analysts consider the library a good strategic fit for a major studio like Sony Pictures, especially with the explosion in the sale of DVDs and with technologies on the horizon that could allow companies to further exploit collections of movies and TV shows.

Officials at Time Warner have made it clear that they’re interested in MGM, although Chief Executive Richard Parsons has told associates he thinks $5 billion is too high a price. The company’s Warner Bros. unit is familiar with MGM’s library, having distributed its films for years on video. Warner Bros. also owns MGM’s pre-1986 film library, including such classics as “Gone With the Wind” and “The Wizard of Oz.”

As for NBC Universal, Chief Executive Robert Wright has said the company is interested in MGM. He has also said, however, that $5 billion “sounds pretty pricey from what I’ve seen.”