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  • Sony in Talks to Buy MGM, Others Wait in Line, Too

    SONY IN TALKS TO BUY MGM, OTHERS WAIT IN LINE, TOO

    Financial Express
    May 1, 2004

    Sony Corporation is in talks to buy out Metro-Goldwyn-Mayer (MGM) -
    one of Hollywood's oldest studios. If the deal goes through, Sony will
    buy out the legendary movie studio together with two private equity
    firms - Texas Pacific Group and Providence Equity Partners. MGM is
    apparently looking at a $ 5 billion deal, including debt tied to a
    planned dividend payment. Under the terms being discussed, the three
    partners would put up a total of $ 1.5 billion in cash, and borrow the
    remainder to finance the deal. MGM is currently valued at $ 4.1
    billion, which makes the asking price of $ 5 billion a significant
    premium.

    The key negotiator on the MGM-side is octogenarian billionaire
    financier and deal-maker Kirk Kerkorian, who owns 75 per cent of
    MGM. Kerkorian's investment firm, Tracinda Corp., has bought and sold
    MGM several times over. He first bought the studio in 1969, later
    selling it to media mogul Ted Turner. He last bought it back in
    1996. This is not the first time that Sony and MGM have been at the
    negotiating table. It neared a deal a few years ago to merge with Sony
    Corp.'s movie business, Sony Pictures Entertainment. The transaction
    would have involved a so-called "reverse merger," whereby Sony would
    have folded its movie business into MGM in exchange for a majority
    stake, but the talks were scuttled in 2001. Neither is Sony the only
    interested party in MGM. Among the frequently mentioned suitors for
    the movie studio are Sony, Disney, Time Warner and News Corp. MGM's
    value lies in the company's library of over 4,000 films - the world's
    biggest movie library. It's franchises include James Bond, Rocky,
    Robocop and the Pink Panther (a franchise which it hopes to revive
    next year with a new movie starring Steve Martin) together with an
    estimated 10,000 TV episodes. Sony, for its own part, already has a
    catalogue of 4,000 films (largely inherited from the buyout of
    Columbia Tristar several years ago), including franchises like
    Spider-Man, and is the second largest distributor of movies in North
    America (MGM is ninth). Sony's successful acquisition of MGM would
    make it the single largest market shareholder at the US box office,
    based on 2003/2004 figures. MGM's movie library offers any potential
    buyer the opportunity to leverage these assets to create a very
    lucrative cash cow by tapping into the DVD market. Old movies can be
    packaged into new DVD editions, and broadcast deals can be struck with
    content starved cable and satellite channels. This could successfully
    create a business which is more immune to the vagaries of
    film-making. Sony's interest in MGM this time round is also in sync
    with the company's current movements in the consumer electronics and
    games industries. Sony is scheduled to launch the PlayStation Portable
    at the end of this year, offering movie playback off a new media
    format, UMD. For UMD to take hold, software support in the form of UMD
    movie releases is crucial. Sony-MGM's combined movie library could
    give the company enough of a critical mass to get UMD off the ground
    all on its own. But this deal is far from done. It is reported that
    Time Warner is also considering submitting an offer together with
    private equity firm Thomas H. Lee Partners. Analysts have suggested
    that after recently reducing its overall debt load, TW will have to
    choose between a takeover play for MGM and possible acquisition
    opportunities in the cable industry like bankrupt Adelphia
    Communications. TW has expressed an interest in both cable and film
    library assets. Viacom, another industry player interested in MGM's
    library, has ruled itself out as a bidder for the moment. Viacom
    already owns Paramount Pictures and MGM would be a welcome addition
    but apparently "the price is not right". Price disagreements have been
    the spoiler for MGM's past attempts to strike a deal with major
    studios. Whichever company buys MGM will buying a slice of Hollywood
    history. MGM, whose slogan was "more stars than there are in the
    heavens", is one of the founders of the modern Hollywood studios. It
    was formed in 1924 when Louis B Mayer Pictures, Samuel Goldwyn's
    Goldwyn Pictures and Metro Pictures merged. MGM is closely associated
    with the Oscars. The event was partly the brainchild of Mr Mayer and
    one of MGM's art directors designed the Oscar statuette. The story of
    Kirk Kerkorian too, is the stuff of Hollywood legend. The son of
    Armenian immigrants, who left home at the age of nine to sell
    newspapers on street corners, he has gone to become a media-casino
    tycoon.

    It is still to be seen where, and if, the penny drops. As the global
    media world waits for the outcome with bated breath, India's media
    world too will be anxious to see how an ownership change at MGM may
    impact India's own Zee TV which broadcasts the Zee-MGM channel.
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