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MGM Offers Plan Beyond Vivendi

As studio posts a wider quarterly loss, it says shareholders may gain cash if its asset bid fails.

July 23, 2003|James Bates | Times Staff Writer

Metro-Goldwyn-Mayer Inc. is looking to share the wealth with stockholders if it doesn't bag its multibillion-dollar quarry, Vivendi Universal.

Chief Executive Alex Yemenidjian said Tuesday that MGM probably would disburse some of its excess cash to shareholders should it lose Vivendi's U.S. entertainment assets to another bidder. Although he didn't specify how the payments would be made, Yemenidjian said he would prefer to offer shareholders a chance to sell some of their stock at a premium price.

The disclosure came as MGM announced a second-quarter loss of $133.6 million, or 55 cents a share. That was wider than its $121.8-million deficit a year earlier but smaller than Wall Street expected.

Analysts interpreted Yemenidjian's statements as a strong message to Wall Street that the Los Angeles studio would show financial discipline jockeying for Vivendi Universal's entertainment assets and wouldn't act rashly should it be beaten out.

"We and other analysts criticized them pretty harshly last year on their financial discipline" when the company released some expensive disappointments at the box office, said David Miller, an analyst at Sander Morris Harris Group in Los Angeles. "These guys are trying hard to convince everyone they are back on track."

Added Jeffrey Logsdon, an analyst with Harris Nesbitt Gerard in Boston, "They are sending a clear message to shareholders they won't do something stupid if they don't win Vivendi Universal."

MGM's first-round bid was $11.2 billion in cash. But the studio indicated last week that it might, under certain conditions, raise it to $11.5 billion, an amount Vivendi also considers too low.

MGM executives believe that unlike other bidders, such as Liberty Media Corp. and a group led by former Seagram Chief Executive Edgar Bronfman Jr., MGM could realize substantial cost savings by merging with Vivendi Universal and also boost revenue by combining film and TV libraries.

MGM's quarterly deficit included $93.1 million in red ink from its previously announced sale at a loss of some cable assets to Cablevision Systems Corp.

Cablevision is paying $500 million for MGM's 20% interest in three Rainbow cable channels: AMC, WE: Women's Entertainment and the Independent Film Channel.

The rest of the net loss, which also was expected, came because changes in studio accounting rules require MGM to book marketing costs for films upfront, before revenue flows in. Until recently, studios could amortize those costs for years.

The company had to book costs related to the Reese Witherspoon film "Legally Blond 2: Red White and Blond," which opened in theaters just after the quarter ended. Ultimately, Vice Chairman Chris McGurk said, the company expects the film to be highly profitable.

Excluding the cable deal, MGM lost 17 cents a share. Most expected a 19-cent loss, an MGM spokesman said.

MGM's sales rose 45% in the quarter to $487.7 million from $336.9 million a year earlier. The company also said it generated $51.2 million in cash flow in the quarter, compared with a $22.6-million drain of cash by its operations a year earlier.

McGurk said MGM has an average of only $25 million invested in three upcoming films this year under the MGM label, including one starring Denzel Washington, and an average of only $5 million invested in two other films being released under its United Artists banner.

The financial results were announced before markets opened Tuesday. MGM's stock rose 34 cents, or 2.8%, to $12.60 on the New York Stock Exchange.

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