Analysts say MGM/UA's chances of remaining solvent may largely depend on the performance of the 11-picture film schedule that Pathe has developed. One top financial analyst, who asked that his name not be used, said MGM/UA will be even more pressured than other studios to come up with box-office winners. "If those pictures do not attract box-office success, you'd be looking at a severely wounded or impaired company," the analyst said.
Pathe also must contend with lawsuits filed by two top producers, Alberto Grimaldi ("Last Tango in Paris") and the producers of the James Bond films, who contend that their profit participations will be sharply curtailed under the buyout. In his suit, Grimaldi has claimed that Pathe had sold rights to MGM/UA films to an array of foreign buyers, and has borrowed as much as $650 million against the contracts from Credit Lyonnais Bank Nederland. Pathe is contesting the lawsuit but hasn't commented on the specific claim.
Under an earlier plan, Pathe had raised a substantial portion of its buyout financing through short-term loans and advances that it expected to retire by selling $300 million or more in new common stock.
It isn't clear whether any such plans lay behind the current buyout, although a new share offering would be extremely difficult in a market that has battered the stock of even such solid entertainment companies as Paramount Communications Corp. and Walt Disney Co.
The merger represents a marriage of two companies that have been struggling. For the nine months ended May 31, MGM/UA posted a $32-million net loss. Pathe made a $1.3-million profit for the last six months before an extraordinary credit.
While Pathe brings such upcoming films as "Russia House" to the table, the combined companies will now have to come up with millions of dollars to cover the cost of marketing those films, as well as a bare minimum of $100 million to produce even a modest slate of big studio-quality movies over the next year.
Pathe representatives have said they expect to have ample funding to produce and market films, largely from existing bank credit lines. But they haven't detailed future film plans.
Alan Ladd Jr., a 52-year-old film veteran and Pathe's current film chief, will head movie-making operations for the combined companies.
Richard Berger, who has headed MGM/UA's film operation since Ladd quit in a falling out with Kerkorian two years ago, said he wasn't sure if he would remain with the company. "Laddie's said they'd like to find a place for me. But I don't know," Berger said in a telephone interview after the merger was announced.
Berger said he expected staff cuts of 100 employees in MGM/UA's home video unit and other cuts in the film production staff. But he said the marketing and distribution departments might actually expand to handle the dozen or so films Pathe has produced and now expects to release through MGM/UA.
"This is very sad for a lot of people. They're not going to have jobs. . . . The business is contracting," Berger said.
In the last several years, the film industry has seen Tri-Star Pictures and Columbia Pictures combined into Sony's Columbia Pictures Entertainment, and the collapse of independent movie companies such as the Lorimar Telepictures film unit and Weintraub Entertainment Group.
Pathe was formed in 1989 when various European companies controlled by Parretti and Fiorini took control of what was then known as Cannon Group. Cannon had long produced low-budget films and made a largely unsuccessful attempt to produce big-star vehicles under its top executives, Globus and Menachem Golan.
MGM/UA's sale has been contemplated for years. The Australian-based Qintex Group agreed to buy the studio for $1.5 billion last year. The deal fell apart, however, when Qintex was un able to secure financing. Qintex was subsequently forced to file for bankruptcy.
Turner Broadcasting System purchased MGM/UA for $1.5 billion in 1986 but immediately sold back most of the company to Kerkorian, keeping the MGM film library for use on his cable television services.
Kerkorian declined to say what he plans to do with his share of the proceeds from the sale, though it is widely assumed that he will use it to build his planned Las Vegas casino and theme park. "Whatever it is, we have to wait and see," he said.
Times staff writers Robert E. Dallos, David J. Fox and John Lippman contributed to this story.