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Spotlight turns on MGM
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November 13, 1997: 8:54 p.m. ET
Hollywood studio debuts with five percent return for investors
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NEW YORK (CNNfn) - Legendary motion picture studio Metro-Goldwyn-Mayer Inc. on Thursday marked its return to Wall Street with mixed reviews, but eventually rewarded investors with a 5-percent return.
Shares of the Santa Monica, Calif.-based company (MGM), which sold 9 million shares late Wednesday at $20, rose a point to close at $21.
But the offering was completed only after a $75 million cash infusion from principal shareholder Kirk Kerkorian, who bought nearly 4 million shares at $18.85 apiece. And, at one point, the stock traded as low as $19 on the New York Stock Exchange.
Now, rather than owning 55.6 percent, the billionaire investor (through his investment vehicle, Tracinda Corp.) owns 61.1 percent of the company.
The volatility underscores Wall Street's longstanding view of the risks associated with the motion picture industry. Because a majority of the film products produced by any movie studio don't provide a return, profitability greatly depends on the mega-blockbuster.
Indeed, MGM warned in the IPO offering prospectus that it hasn't turned an operating profit since 1988.
And, because the studio focuses more on quality, they don't offer an extensive product line.
"They don't produce as much film as others," said Randall L. Hester, vice president of marketing at Cinemark USA Inc., one of the nation's largest operators of theater chains.
Yet, Hester was also quick to point out that blockbusters do occur, even though it is rare.
"A few good movies can cure a lot of things," he said.
In its James Bond franchise, MGM produces the most successful feature film series in history with worldwide billings of $3 billion. And, the studio is set to release the 18th installment in December.
In addition, MGM provides the adequate marketing and exhibitors relations services such as advertising campaigns and promotional materials (posters, T-shirts, etc.) in hopes of ensuring the success of its releases.
"Their marketing support for us as exhibitors has always been very good. We've always gotten what we wanted and felt we needed to market the films," Hester added.
MGM officials declined to comment on this article.
-- by staff writer Robert Liu
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MGM/UA
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