NEW YORK (CNNfn) - In order to fund its $10 billion acquisition of music label PolyGram N.V., Edgar Bronfman Jr.'s Seagram Co. agreed to sell the Dutch entertainment company's film library for $250 million to Metro-Goldwyn-Mayer Inc., the studio controlled by billionaire financier Kirk Kerkorian.
The sale, announced Thursday, came after weeks of auctioning failed to produce a buyer willing to pay the price Seagram had hoped for. The Canadian media and beverage concern was said to be asking for upwards of $750 million but subsequently dropped its price. A deal with MGM valuing the library at $400 million collapsed earlier this month.
After the PolyGram deal is completed, Seagram will be the largest participant in the music business, with global market share of about 23 percent. Closing is expected in the fourth quarter.
In a statement, Seagram's Bronfman said the deal still "would bring significant value to our shareholders."
But concerned with its growing debt levels, Moody's Investors Service cut Seagram's debt ratings Thursday, affecting about $3 billion worth of borrowing. The downgrade will make it more costly for Seagram to issue new debt.
Seagram already has sold its Tropicana Products juice division to PepsiCo Inc. to raise about $3 billion and recently disclosed its intentions to divest its Mumm and Perrier-Jouët Champagne companies.
Also, Seagram said it will consider its "strategic alternatives" regarding PolyGram Film's production and distribution assets. Seagram also will retain control of a smaller film collection known as "the ITC library."
MGM, No. 1
PolyGram assembled the PolyGram Film Entertainment library -- which includes such Academy Award-winning movies as "The Graduate" and "Fargo" -- when it merged its own smaller catalog into the 1,000-film Epic library in January 1997. It acquired the Epic assets for $225 million from Credit Lyonnais in a bidding war in which MGM also participated.
The deal will give MGM the world's largest film library, with about 5,200 titles. The Hollywood studio, which owns the successful James Bond franchise, will own more than half of all films produced since 1948.
In addition, the domestic cable distribution rights to parts of the MGM library -- sold to Ted Turner in 1986 -- will begin to revert to MGM by the end of 2000.
Movie studios use their motion picture libraries in a variety of ways, including bundling films into packages to enhance deals with cable outlets. In addition, they can generate revenue through home video distribution and leverage the rights to re-make some classic films.
Of the total price, MGM will pay $235 million in cash with the remaining $15 million coming out of the business's operating cash flow prior to the closing on Jan. 1, 1999. To fund its latest purchase, MGM plans to increase the size of its previously announced rights offer to $700 million from $500 million, causing slightly more dilution.
Shares of MGM (MGM) were down 13/16 at 8-15/16 while Seagram's stock (VO) was down 5/16 at 31-7/16.
-- by staff writer Robert Liu