Sony Deal for MGM Would End a Long Run

Sony Corp. struck a tentative deal Monday to buy Metro- Goldwyn-Mayer Inc. for about $4.8 billion, promising to spell the end of MGM’s 80-year run as a stand-alone movie studio.

The agreement with Sony and three investment partners, which together have offered to pay about $2.9 billion in cash and to assume $1.9 billion in debt, came after five months of negotiations and a bidding war orchestrated by MGM.

Sony and media conglomerate Time Warner Inc. jockeyed for position to acquire MGM and its valuable library of more than 4,000 movies, which includes the James Bond franchise, the “Rocky” film series and such recent hits as “Legally Blonde” and “Barbershop.”

Sony’s victory came at the eleventh hour over the weekend, after the Japanese company enlisted cable giant Comcast Corp. in a venture to launch new channels featuring Sony and MGM movies. Sony and Comcast also will team to showcase these films on Comcast’s video-on-demand system.

The deal with Comcast, which also is expected to invest in MGM down the line, was the impetus for Sony’s sweetening its bid and trumping Time Warner’s $4.6-billion offer. Time Warner said Monday that it was dropping out of the race, hours before the Sony-MGM agreement was announced.

If the sale goes through, MGM would become the first of what some call Hollywood’s “seven sisters” -- including 20th Century Fox, Paramount, Disney, Universal, Warner Bros. and Columbia Pictures -- to disappear as a major studio.

“It was once the premier studio of all time,” said former MGM chief Alan Ladd Jr. “It’s been dwindling away at a slow pace for years. There’s nothing that can save it, so it’s best to dispose of it.”

In the last two decades, MGM has operated as a significantly scaled-down version of what it was during Hollywood’s golden era in the 1930s and ‘40s. In those years, MGM was ruled by the likes of legendary moguls Louis B. Mayer and Irving Thalberg, and it boasted of having “more stars than there are in the heavens.” Among the classic films it made were “The Wizard of Oz,” “Singin’ in the Rain” and “Ben-Hur.”

But operating exclusively as a movie studio, MGM finds itself today dwarfed by media behemoths. These include 20th Century Fox parent News Corp. and Paramount Pictures owner Viacom Inc., whose empires also extend into television broadcasting, publishing and pay TV.

Although Sony is expected to preserve the MGM name and its famed lion logo in a movie production arm, the sale would eliminate a studio at a time Hollywood is tightening its belt because of rising production and marketing costs.

“As an agency, we like to see more buyers, not less,” said International Creative Management Chairman Jeff Berg. “But this deal represents a further and inevitable consolidation of the film industry.”

MGM and Sony confirmed the tentative deal in statements issued late Monday.

The sale would mark the third exit from Hollywood for 87-year-old gambling billionaire Kirk Kerkorian, who has owned MGM twice before. Many in Hollywood have speculated for years that Kerkorian, considered by Wall Street to be one of the nation’s savviest investors, would sell the Los Angeles studio for the right price. But previous efforts, including a near-miss by Time Warner late last year, unraveled. And MGM insiders had indicated that Kerkorian, who owns 74% of the studio, would not agree to sell for anything less than $5 billion.

A host of final details still must be worked out by Sony, which risks forfeiting a nonrefundable $150-million deposit made to MGM if it is unable to complete the deal. Even if an agreement is reached, it could take four to nine months more to clear regulatory hurdles.

The deal was announced after markets closed. On the New York Stock Exchange, MGM shares rose 44 cents to $11.55, and Sony added 53 cents to $35.82. Comcast Class A shares rose 12 cents to $28.12 on Nasdaq.

The prospective acquisition would pay MGM stockholders $2.85 billion, or $12 a share; of that, $2.1 billion would go to Kerkorian. An additional $1.9 billion would pay off debt taken on this year to pay stockholders a special $8-a-share tax-free dividend. MGM is expected to recommend the deal to its board by Sept. 27.

Banc of America Securities analyst Michael L. Savner, who estimates that MGM is worth $11 a share, said the price would prove reasonable if Sony could squeeze out overhead costs and boost revenue from such areas as DVDs and cable TV.

Sony is expected to put up $250 million to $300 million and would run the operation. The rest of the money is to come from bank financing and Sony’s three investment partners: Texas Pacific Group, Providence Equity Partners and DLJ Merchant Banking Partners. If Comcast joins in, sources said, it probably would pay the same amount as Sony.

Sony hopes to buy out the other investors, save for Comcast, in three to five years.

Under Sony’s plans, MGM and its historic United Artists unit would be preserved in a production entity overseen by Culver City-based Sony Pictures Entertainment. Sony would market and distribute about half a dozen MGM/UA movies a year. Unclear is what would happen to MGM management, including Chairman Alex Yemenidjian, and a workforce of about 1,400.

Although MGM has focused mainly on moderately budgeted films in recent years and has had few breakout hits, it could provide additional depth to Sony’s already considerable Hollywood operation. Sony’s holdings include Columbia Pictures, the studio behind such blockbusters as the two “Spider-Man” movies.

Sony is particularly eager to get its hands on the MGM library, which besides movies includes 10,000 television episodes, at a time DVD sales and cable outlets have made such troves golden.

Owning MGM also could give Sony added clout as it tries to steer the entertainment industry toward the Blu-ray technology it is helping develop for a new generation of high-definition DVD players.

With high-definition technology gradually replacing conventional video, consumers may restock their home collections yet again, just as they replaced videocassettes with DVDs. In addition, the cable TV companies’ rollout of video on demand and the launch of downloadable video services bode well for owners of large film and TV catalogs.

For its part, Comcast has been on the prowl for ways to own more of the content it distributes to nearly 22 million households nationwide. The Philadelphia-based company eyed Vivendi Universal’s entertainment assets last year but failed to make an offer, leaving NBC to clinch the deal. Then in February, Comcast made an unsolicited -- and ultimately unsuccessful -- bid for Walt Disney Co.

This summer, Comcast Chief Executive Brian L. Roberts looked at MGM as a potential acquisition target but passed. Though unwilling to make a solo run at MGM, sources said, Roberts inquired about participating in Sony’s consortium several months ago. Sony, however, had little interest in partnering with Comcast until about two weeks ago.

As late as Sunday, Time Warner believed it had the inside track. Indeed, executives from its Warner Bros. unit in Burbank flew to New York over the weekend, anticipating that a deal would be announced today after a special Time Warner board meeting. By early Monday, however, Time Warner realized that Sony had raised the stakes and issued a statement saying MGM had become too expensive.

MGM is housed in a Century City office tower and hasn’t occupied a studio lot in nearly 20 years. As it turns out, Sony’s current home in Culver City was MGM’s lot during its heyday when Judy Garland, Gene Kelly and Mickey Rooney roamed the corridors.

Times staff writer Sallie Hofmeister contributed to this report.