MGM Walking A Fine Lion Amid Sale Talks

MGM is striving diligently to maintain a business-as-usual approach, even as sources acknowledge the studio continues yearlong discussions about a possible sale.

The Lion will start productions and greenlight additional films, said execs, who pledged to creative partners that commitments will be fulfilled even if a sale of MGM is ultimately completed.

Corporate insiders at MGM on Tuesday denied a report that a new relationship has been struck with Goldman Sachs. The investment firm's mergers-and-acquisitions specialists have actually been working with them for more than a year, the sources said.

The studio's reclusive billionaire owner Kirk Kerkorian apparently wants to focus on his currently ailing Las Vegas casino operations. So he has decided to sell his 80% MGM stake, which he accumulated over the past several years at an average cost of more than $18 per share -- or about $4 under current value.

A strategic buyer could potentially shut down film production, keying instead on the Lion's huge library of more than 4,000 movie titles.

``There have been investment bankers all over this place,'' one source said. ``It's a fait accompli that they're going to sell it.''

Such speculation left Lion execs anxious to downplay the notion that any such deal was imminent. They noted that the studio has a movie-greenlighting session scheduled for Friday, which they portrayed as a sign of business status quo.

``The studio continues to move forward in film and TV,'' MGM vice chairman and chief operating officer Chris McGurk said Tuesday. ``The 20th James Bond movie started production Monday, and 'Barbershop,' starring Ice Cube, starts production in Chicago on Friday.''

Some 15 MGM and United Artists projects are in production, post-production or pre-production, McGurk said, and UA president Bingham Ray is at the Sundance Film Festival seeking additional acquisitions for his arthouse division.

Meanwhile, Lion execs insisted they will continue to sign talent for various projects. Whether that proves feasible for a studio in play is another matter, of course.

``I would be very wary to have a client go pitch at MGM right now, if it's something starting from scratch,'' an agent observed. ``If it's just a talent-attachment situation, that's different and I probably wouldn't mind. But it depends on the situation and the client and how hot the project may be.''

Among planned MGM/UA film productions are another James Bond movie and the John Woo-produced, Chow Yun Fat toplined chopsocky actioner ``Bulletproof Monk,'' plus planned sequels to the ``Jeepers Creepers'' horror pic and ``Legally Blonde'' comedy.

MGM production partners expressed optimism the sales talk would soon be sorted out, though the auction talk caught MGM filmmakers by surprise.

``I hope it's not going to affect us,'' said Terence Chang, partner with director John Woo in Lion Rock Prods., which starts shooting ``Bulletproof Monk'' on March 2.

MGM already has Chang and Woo's ``Windtalkers'' in the can -- awaiting a summer release after a Sept. 11-caused schedule shift -- and four other Lion Rock projects in various stages of development.

``As of this point, we are very much involved with actively getting our pictures off the ground,'' said Ashok Amritraj, co-topper of Hyde Park Entertainment.

The MGM-based production company has a first-look deal with the studio. Hyde Park projects in development include actioner ``Extractors'' and action comedy ``Ump.''

At least some of the town's dealmakers seemed skeptical of the Lion's ability to continue business as usual.

``Now that it's out, you have to think really hard and look really carefully if you're thinking of setting up a project there,'' said one top literary agent who does business with MGM.

Added another: ``I don't have to tell you. You know it becomes the last-ditch place. Why would you put a project in a place where, if a sale does transpire, at best, you're stuck with the stigma of the old regime, and at worst there's a moratorium on spending and the project dies. Why build a house on sand?''

An insider said Kerkorian nixed a proposal floated by Disney last summer that placed a roughly $23 per share valuation on MGM. The source added that the famously nimble dealmaker probably ``would jump at that price today.''

Another source said Kerkorian still believes he can get $26-$30 per share for his holdings. A $26-per-share deal would represent a $7 billion transaction.

Most speculation focused on a likely acquisition by an owner of one or another of the other Hollywood majors. Disney and Viacom are considered the likeliest MGM suitors from that group.

A spokeswoman for Sony, which held talks with Lion execs late last year, said the Tokyo-based electronics giant isn't involved in any current negotiations. News Corp. and AOL Time Warner execs declined comment, but a source at the former company said the prospective price was too rich for chairman Rupert Murdoch right now.

Vivendi Universal boss Jean-Marie Messier said last week he doesn't expect the Paris-based studio parent to make any big acquisitions this year after sealing a pricey deal for several of USA Networks' entertainment assets last month.

DreamWorks, the least vertically integrated of Hollywood studios, is considered a longshot suitor due to the high asking price. But the studio is engaged in talks with MGM reps and could figure in a deal in which some sort of merger of equals is fashioned.

Handicappers said a dark horse like radio and TV group Clear Channel or German media conglom Bertelsmann could surface. Bertelsmann soon will get $6.75 billion from AOL TW for the German group's holdings in AOL Europe.

Or Spanish broadcaster Univision could enter the fray. Billionaire owner Jerrold Perenchio is a close friend of Kerkorian.

There have been rumors for months that Kerkorian, who is going through a messy divorce, had decided to sell the Lion or merge it with another studio. MGM chairman-CEO Alex Yemenidjian has repeatedly denied that MGM was for sale, though he acknowledged some sort of strategic alliance could eventually emerge.

On Tuesday, the Lion issued a statement acknowledging only that the studio has been ``regularly evaluating business combination opportunities.'' But speculation of an imminent sale or merger suddenly has even many MGM execs in a tizzy.

Insiders began reading the writing on the wall at the Santa Monica-based studio when word came down that film production spending this year would be flat with 2001 at $450 million. The Lion had been steadily increasing such expenditures in an effort to return the studio to a full release slate for the first time in years.

MGM's library is said to be worth $4 billion-$5 billion, and a library-poor, distribution-rich studio like Disney could assign as much as $2 billion in added value from the prospect of expanding the MGM brand overseas.

Lion already has created more than a dozen international pay TV channels, but it has failed thus far in a quest to do something similar domestically. In April, MGM paid $825 million for a 20% stake in four U.S. cable channels controlled by Cablevision's Rainbow Media, and Yemenidjian recently confirmed ``embryonic'' talks with U.S. satellite broadcaster EchoStar for an MGM-branded channel.

The 84-year-old Kerkorian, who first acquired the studio in 1969, bought back into the studio most recently during a 1996 auction by then-MGM owner Credit Lyonnais, a French bank. He previously sold off control in 1986 and again in 1990 after earlier ownership stints.

The library, which was pared down by Ted Turner's acquisition of most MGM titles in 1986, has been bolstered by more recent acquisitions since Kerkorian returned to the studio. (The Lion retained most United Artists titles in the Turner transaction, including the Bond, Pink Panther and Rocky titles.)

First backing a studio regime headed by veteran Hollywood exec Frank Mancuso and then by the Yemenidjian team, Kerkorian has effectively funded the acquisition of titles from the Orion, Motion Picture Corp. of America and Polygram Filmed Entertainment libraries. As a result, the Lion's most fetching feature today is a library of impressive mass.

MGM shares soared on reports of a possible sale. The stock rose $2.39, or 12%, to $22.27.

Sanders Morris Harris analyst David Miller issued an ``accumulate'' rating on the stock as shares began to rise Tuesday. The firm has a $23 target share price on the stock.