A tiny Pacific Island insurance company claims to own as much as 35% of MGM-Pathe Communications Co., in a bizarre court fight over Italian financier Giancarlo Parretti's $1.4-billion acquisition of MGM last year.
The case was filed Jan. 15 in Rarotonga, the Cook Islands, by Century Insurance Ltd. against Credit Lyonnais, the European banking giant that helped finance the acquisition.
Century operates from Brisbane, Australia, but is incorporated in the Cook Islands. It has claimed that Parretti gave the company 30 million shares of MGM-Pathe and related companies as collateral for an insurance policy that helped the financier get the final $175 million he needed to buy MGM/UA Communications Co. last Nov. 1.
People involved with the case said Credit Lyonnais' Netherlands branch has acknowledged Century's ownership of the shares, but has insisted on holding them in an escrow account. Parretti, now chairman of MGM-Pathe who is struggling to keep the movie studio afloat, has not yet filed documents with the Securities and Exchange Commission detailing the studio's ownership.
It is not clear what the outcome of the case will be, but it adds another twist to an increasingly complicated financial saga.
Neither Parretti nor MGM-Pathe is a party to the lawsuit. But Century is one of six petitioners seeking to force MGM-Pathe into bankruptcy in a court case filed last week in Los Angeles federal court. Century and its principal owner, Donald Davies, have said they are owed $1.75 million in fees for the loan guarantee.
An MGM-Pathe spokeswoman called Davies' claim "bogus" and maintained that Century never actually posted the insurance bond. Company officials said Parretti's holding company conducted "early" discussions with Century but withdrew from the talks when it realized that Century lacked the "financial wherewithal" to secure the bond.
Patrick Bastin, head of entertainment lending for Rotterdam-based Credit Lyonnais Bank Nederland, declined to discuss company matters when reached at home late Thursday. The Netherlands bank is a unit of Paris-based Credit Lyonnais.
According to the chief justice of the Cook Islands and others, the suit claims to provide details of Parretti's last-minute scramble to assemble financing for the long-delayed MGM/UA purchase.
Chief Justice Clinton Roper, who presides over the island court from Christchurch, New Zealand, confirmed that Century and Davies are seeking physical possession of millions of shares in Parretti-related corporations, which were supposedly given to Century shortly before the MGM/UA purchase closed.
Davies, reached in Brisbane, said Parretti gave his company the stock Oct. 29, three days before the MGM/UA deal was finalized. He said it included 10 million shares of Pathe Communications Co., then controlled by Parretti; 10 million shares in MGM/UA Communications Co., which Parretti did not yet own; and 10 million shares in Melia International N.V., a Dutch company controlled by Parretti and his partner, Florio Fiorini.
Davies declined to comment on claims by people familiar with the transaction that his insurance company had only about $20 million in assets at the time. "He assigned the shares to us. We own them," Davies said Thursday.
Davies said he received a letter Dec. 21 from Credit Lyonnais in which an officer of the bank acknowledged holding in escrow the 30 million shares. He said the letter described the shares as being stock in Pathe, Melia and MGM-Pathe. Davies said, however, that he had actually been given MGM/UA, not MGM-Pathe, shares. The Times provided a copy of the purported letter to an MGM-Pathe attorney. The company spokeswoman did not question its validity, but said the letter was not from a senior bank official and therefore was not reliable.
It is virtually impossible to calculate how big a stake the shares might represent in the troubled movie studio because Parretti hasn't disclosed ownership details since the merger. He has said that Melia is a principle owner of MGM-Pathe, which was merged with MGM/UA in the deal. Davies said he has "been told" that his stake represents as much as 35% of the studio, however.
Stephen Chrystie, a Los Angeles attorney who represents Century in the bankruptcy petition against MGM, declined to comment on the Cook Islands suit. MGM-Pathe has called the bankruptcy request "ridiculous" and has promised to fight it.
In a Dec. 24 letter to Parretti, also provided to The Times, a Credit Lyonnais officer advised Parretti that the insurance guarantee might be canceled immediately if he did not pay the fee. People familiar with the situation have said the bank, which had already extended hundreds of millions of dollars to Parretti, was reluctant to lend against the receivables without insurance.
The receivables, according to the Dec. 21 letter, were contracts reflecting expected future payments from Britain's Rank Organization and Sky Television, a consortium Spanish television stations, and the New York-based Showtime cable network.
Davies said in an interview that MGM was to pay the $175 million back in the course of a year, with the first payment of about $60 million due at the end of last December.
MGM-Pathe has said it is negotiating with Credit Lyonnais for a new loan of at least $250 million.
Justice Roper said Thursday that his court must first determine whether it has jurisdiction over the dispute before proceeding to trial.
The Cook Islands--a 15-island group with a population of 20,519 and a total land mass of 93 square miles--are administered by New Zealand, which lies 1,600 miles to the southwest. Much like the Netherlands Antilles, they have become a haven for corporations seeking to take advantage of favorable taxes and other laws.
It remains unclear how Davies became connected with the MGM deal, or what Century's principle lines of business are. Davies declined to discuss the company.