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MGM posts 'For Sale' sign
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August 6, 1998: 2:26 p.m. ET
Hollywood studio held preliminary talks with News Corp., mulls other combinations
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NEW YORK (CNNfn) - Metro-Goldwyn-Mayer Inc. has held preliminary discussions with rival studios and broadcasting concerns regarding some "possible business combinations."
The talks -- initially held with News Corp., the parent of the Fox Broadcasting network -- would help to strengthen the distribution of MGM's films and television content.
"Proprietary distribution has always been a priority here. That's obviously the key component," said Craig Parsons, company spokesman.
But the talks also could result in the sale of the entire company, Parsons added. The Santa Monica, Calif.-based company confirmed the preliminary discussions on Wednesday in a filing with the Securities and Exchange Commission.
The development sent the stock (MGM) soaring, up 1-1/16 to 18-3/16 in Thursday trading on the New York Stock Exchange.
MGM's public disclosure also comes as broadcasting concerns such as General Electric Co.'s (GE) NBC subsidiary have expressed a desire to combine with Hollywood studios. NBC currently lacks production facilities and relies on competitors for its top-rated content like "ER."
MGM in the past has privately indicated its intention to fortify its distribution capabilities. But analysts explained MGM's principal owner, Kirk Kerkorian, probably felt a heightened sense of urgency to find a strategic partner after the first half of 1998.
"Maybe it was accelerated by the disappointing second quarter," said Arthur Rockwell, analyst at Drake Capital Securities.
"Kerkorian has put the thing in play. He may let people look at the asset. I think they are just rolling the dice to see what happens," Rockwell said.
Due to poor box office performances, MGM posted negative cash flow of $28 million in the second quarter. In addition, new television production has drained cash positions, forcing the company to conduct a rights offering to raise $250 million in new funds.
MGM currently is producing 10 television series for the fall '98 season. The studio now has halted further development of television projects.
"We've been able to sell more series than we had planned, but they take capital," Parsons said.
Any potential sale would represent at least the third time Kerkorian has sold off the company. Kerkorian first gained control of MGM through a takeover raid in the 1960s.
Over the next decade, Kerkorian sold off pieces of MGM's prized portfolio of assets, to the dismay of Hollywood insiders. The fire sale included everything from MGM's legendary back lot in Culver City, Calif., to Dorothy's ruby slippers from "the Wizard of Oz."
Kerkorian then sold MGM to Ted Turner in 1986, only to buy back the rights to the studio's name and logo that year. Turner has kept the library of pre-1986 films.
But by November 1990, MGM was sold once more to Pathe Communications, which was controlled by Italian financier Giancarlo Parretti for $1.8 billion.
By 1992, after severe financial problems, MGM's board and creditors stripped Parretti of control over the movie studio. From 1992 until 1996, the assets were placed with the French bank Credit Lyonnais, which oversaw an auction of the assets in 1996. Kerkorian won the auction, paying $1.3 billion.
-- by staff writer Robert Liu
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MGM/UA
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