For the second time in four months, MGM/UA Entertainment Co. has sweetened an offer to buy back the 15% of MGM/UA Home Entertainment Group Inc. that it doesn't already own.
The Culver City-based motion picture company on Tuesday offered a 21% increase in the face value of subordinated notes that it is offering in exchange for the publicly traded Home Entertainment shares. By one analyst's calculation, the cash value of the deal has improved to about $27.50 per share, up from $22.
Unlike its previous offer, MGM/UA said it won't vote its 85% stake to assure the merger. The company said the outcome will hinge on the decision of Sumner Redstone, the beneficial owner of more than half of the publicly traded shares of the Home Entertainment Group, which sued MGM/UA last month for allegedly imposing an unfair price on the home video company's shareholders.
Redstone, president of National Amusements Inc., a movie theater exhibitor based in Dedham, Mass., could not be reached for comment. Redstone and National Amusements together own nearly 2.3 million shares, or almost 7.8% of the home entertainment company.
Vote Planned in May
"To my knowledge, he has not responded," MGM/UA spokesman Art Rockwell said. Shareholders of the home entertainment company will vote on the revised terms at a meeting expected to be held in late May, MGM/UA said.
On Wall Street, several analysts wondered anew why MGM/UA is anxious to regain full control of the home entertainment company. For the past several months, speculation has mounted that MGM/UA majority shareholder Kirk Kerkorian needs 100% ownership of the home video company in order to implement some other plan, such as selling part or all of the motion picture company.
"I just don't know why he wants it. There has to be something behind it, or it's illogical," one analyst said, estimating that the repurchase will cost MGM/UA about $15 million in annual interest payments at a time when it is trying to reverse its own misfortunes at the box office.
Rockwell said he has no knowledge of any plans that Kerkorian might have, but the MGM/UA spokesman said the repurchase "makes sense from a corporate position." Rockwell said MGM/UA "needs closer control and coordination" of the home video company and added that there "obviously will be a savings in overhead and expenses."
Redstone, in a lawsuit filed in a New York federal court, alleged that MGM/UA misled investors by encouraging the public to invest in the home entertainment company for its long-term prospects, then forcing a "cram down" merger.
Accused of Manipulation
Redstone also accused MGM/UA of manipulating and depressing the home entertainment company's stock by utilizing the smaller company's assets for the benefit of MGM/UA and alleged in the lawsuit that MGM/UA has omitted material facts regarding the merger.
MGM/UA executives have declined to comment on the lawsuit's allegations but said last week that talks had begun to settle the litigation and one other shareholder's suit filed in a Delaware state court. At the time, MGM/UA said the terms of the offer might be increased as part of a settlement.
On Tuesday, however, MGM/UA said it had not discussed the revised merger terms with either party.
Under the new terms, MGM/UA is offering $34 principal amount of its 10% Series A senior subordinated notes due April 15, 1993. The company no longer will offer Home Entertainment shareholders the alternative of receiving shares of MGM/UA common stock in lieu of the notes.
Under the prior offer, made on Feb. 14, Home Entertainment shareholders were offered either $28 principal amount of the notes or 1.75 shares of MGM/UA common stock.
When MGM/UA first announced its offer to repurchase the 15% stake on Dec. 14, 1984, the company offered only the notes in the principal amount of $28 each.