Kerkorian wants shares, not cash for stake in MGM

Billionaire investor Kirk Kerkorian is looking for an all-share deal to merge Metro-Goldwyn-Mayer Inc, the Hollywood studio company he controls, with a rival group, sources familiar with the situation said on Wednesday.

They said MGM, which owns one of the largest feature film collections in the world, has recently hired investment bank Goldman Sachs to prepare and distribute financial information about the company to potential buyers.

MGM and its advisors have been talking to Walt Disney Co., Dreamworks SKG, Sony Corp. and AOL Time Warner as possible partners, the sources said.

Instead of cashing in now, Kerkorian, the 84-year-old mogul who owns 81 percent of MGM, wants to accept shares in a rival group and see his portfolio grow further. Kerkorian, however, does not want to play any management role, sources said.

Kerkorian has been planning to swap his stake for the past several months. MGM Chief Executive Alex Yemenidjian has reined in costs and retained talented staff in recent years, making the studio more attractive than it has been in years.

Kerkorian also wants to leverage the depth of MGM's library, which includes some 4,100 movies, including the James Bond, 'Pink Panther' and 'Rocky' series.

MGM has a cost structure which is one of the lowest in the industry, analysts say, and people familiar with the situation say Kerkorian wants to drum up a competitive auction for the company to fetch as much as $7 billion.

A tight financial approach has seen the company reducing its overhead as a percentage of revenues, from 16.9 percent to 9.8 percent, the lowest among all major studios, analysts say.

The company's balance sheet also makes it an attractive asset: at the end of third quarter of 2001 it had a debt/capital ratio of 25.3 percent, with unused credit of $600 million and cash reserves of $116 million.

Bankers say that favorites to partner MGM were possibly Disney and AOL as they were best suited to achieve maximum cost savings from a merger, which compensate for the what some see as an expensive price tag.

This is not the first time that the veteran Wall Street investor would be bringing MGM to the deal table. Kerkorian first bought MGM in 1969 and then sold it to media baron Ted Turner in 1986. He bought back most the assets from French bank Credit Lyonnais in 1996. GM's shares closed down 74 cents, to $21.53, on Wednesday, valuing it at $5.16 billion.