Pathe Says It Still Doesn’t Have Funding to Buy MGM

Pathe Communications Corp. continued to shroud in mystery how it will pay for its proposed $1.2-billion acquisition of MGM/UA Communications Co. but admitted in filings Wednesday with the Securities and Exchange Commission that it has not yet lined up any firm sources of financing.

Pathe said it has been in discussions with various parties to help it finance the deal but has received “no commitment or agreement” from any of the parties.

The SEC filing came at the same time that Pathe launched its tender offer for 50.9 million common shares and 10 million preferred shares of MGM/UA stock. Investor Kirk Kerkorian, who gained control of MGM/UA 20 years ago, owns 71.7% of the common stock.

Pathe also said it was seeking to sell or license certain MGM/UA assets, which it did not identify but presumably includes the valuable United Artists film library. Sources close to the negotiations say Pathe is still in discussions with Time Warner Inc., which is interested in the television and home video rights to the 1,000-film UA library.

The filing disclosed that Pathe has received a “non-binding oral commitment from certain affiliates” of up to $200 million to help it finance the acquisition. The affiliates were not identified but are believed to refer to any of more than a dozen European companies with which Pathe principals and officers have a relationship.

In the past, Pathe has relied upon its European interests, which include everything from a travel agency to a real estate company and a 1,050-screen movie theater chain, to help provide financing for acquisitions. Outside sources with knowledge of the deal have valued Pathe’s European interests that could be quickly sold at $200 million to $300 million, although Pathe officials have insisted that the value of those interests is actually much higher.

Pathe said it intends to finance the approximately $1-billion dollar balance with bank borrowings and loans provided by “other financial institutions,” which it also did not identify. In the past, the French giant Credit Lyonnais has financed much of Pathe’s expansion, although the bank has been scaling back its loans to the entertainment business and proceeding cautiously in granting new loans to its roughly 30 entertainment clients.

In addition, Credit Lyonnais officials have been distancing themselves from the bid, and one source in the bank’s Rotterdam branch insists that the bank will not be heavily involved in the MGM/UA acquisition.

Last week, Pathe made the first of four $50-million installments as part of a $200-million guarantee payment toward the purchase price. The filing disclosed that $20 million of the payment came from Pathe affiliates and $30 million came from the company’s own cash reserves.

Since Pathe last week announced its plan to buy MGM/UA, which would include the assumption of about $390 million in junk bond debt, Pathe President and Chief Executive Giancarlo Parretti and Chairman Florio Fiorini are said to have been in Europe trying to line up bank financing and investors.