The New York investment banking firm of Drexel Burnham Lambert has obtained financing to clear the way for Turner Broadcasting System's long-delayed $1.25-billion purchase of MGM/UA Entertainment Co. next week, a Drexel Burnham official said late Tuesday.
Turner and MGM/UA confirmed that next Tuesday has been set for closing the deal in New York. Drexel Burnham said it has sold a huge issue of so-called junk bonds, which are low-rated, high-interest securities, to finance the acquisition.
The deal includes the simultaneous purchase of the United Artists subsidiary by MGM/UA's majority shareholder, Kirk Kerkorian, for about $480 million. Kerkorian in turn will sell about 20% of the new UA to MGM/UA shareholders.
The impending merger has been a saga of difficulties in raising financing and of price renegotiations since broadcasting entrepreneur Ted Turner agreed to buy the venerable Hollywood studio seven months ago.
'All Sold Out'
As recently as Tuesday morning, an executive involved in the merger said Drexel Burnham was going to pick up about one-third of the issue itself for possible sale later.
However, that report was denied late in the day by Michael Brown, a managing partner of Drexel Burnham in its Beverly Hills office.
"It's all sold out," Brown said.
He said he could not make that statement if his company were going to take a share of the securities for its own account.
Some financial sources said it would be highly unusual for Drexel Burnham, which has specialized in financing takeovers with high-risk junk bonds, to pick up such a large portion of a public issue of securities.
Turner, whose spokesman was not available Tuesday, started the day with two announcements of developments bearing on the completion of the merger.
Consents From Holders
First, it said it had received the necessary consents from holders of a majority of the outstanding $400 million principal amount of MGM/UA's senior subordinated notes to the indenture on those notes. Turner is to exchange $1,100 principal amount of its 10.25% senior subordinated notes due 1993 for each $1,000 principal mount of MGM/UA notes.
Several hours later, Turner announced that it had begun the offering of $1.4 billion face amount of zero-coupon senior notes, extendable senior notes and 14% senior subordinated debentures for financing of the merger. The announcement followed clearance of the offering Tuesday by the Securities and Exchange Commission.
Brown of Drexel Burnham said, in response to a question, that he did not think that any potential deals by Turner to sell assets of Turner Broadcasting or MGM would occur before the closing.
A number of potential buyers for studio assets, as well as for interests in Turner's Cable News Network, have been reported as showing interest. However, Turner Broadcasting has maintained that serious negotiations would not be taken up before the MGM deal is completed.
Meanwhile, the head of the nation's largest cable system operator, Tele-Communications Inc., told the press at an industry conference in Dallas on Tuesday that it offered Ted Turner "anything we can do to keep him independent."
John Malone, president of Tele-Communications, told reporters: "We don't want to see him absorbed by some other programmer.
"His problem isn't getting raided. His problem is he's got a huge mountain of debt to service, so he needs to do things to improve his cash flow."
Malone said his company is among those that would like to buy into Turner's CNN and would be willing to let Turner keep editorial control, which he has reportedly insisted on in earlier negotiations.