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Time Warner Might Bid All Cash for MGM

The media company is prepared to pay about $4.5 billion for the film studio, sources say.

September 02, 2004|James Bates | Times Staff Writer

Time Warner Inc. appears ready to pay about $4.5 billion in cash for movie studio Metro-Goldwyn-Mayer Inc., sources said Wednesday, but whether that's enough to bag the lion remains unclear.

Time Warner's apparent willingness to pay cash -- it previously would have offered unregistered securities to MGM's controlling shareholder, Kirk Kerkorian -- appears to be an effort to snatch the Los Angeles studio as a competing bid by Sony Corp. has foundered.

However, sources said, Sony and its partners are prepared to pay around $4.7 billion, albeit through a more complicated offer that may not sit well with MGM.

There are no guarantees that any deal will happen. MGM has been in discussions about selling since April, but expectations in some quarters of a quick deal never materialized. Sources said Kerkorian may still balk from selling in the end because the bidding is now below the $5 billion he wants.

Kerkorian, 87, is known to want Time Warner stock because he believes it is undervalued, and such a deal would let him avoid paying taxes on his proceeds. He controls 74% of MGM.

But sources said the billionaire is now open to an all-cash offer because it would be simpler and shield him from potential future legal headaches.

Under the previous bid floated by Time Warner, Kerkorian would have received $11.50 a share in the unregistered stock, with other shareholders getting $13 a share in cash.

Any bid would also include paying off $1.95 billion in debt used to pay MGM shareholders a special $8-a-share dividend this year.

Despite improving results, Time Warner's stock has been depressed because of a federal probe into the media giant's accounting at its America Online unit.

Sources on Wednesday said that Kerkorian fears that if that cloud is lifted soon, Time Warner stock might soar before a deal closes, leaving him vulnerable to lawsuits and criticism if his shares are worth more than what other stockholders receive in cash. Although most big media companies prefer to pay for acquisitions in stock so they don't drain their cash, Time Warner is hindered in its ability to offer shares because of the accounting investigation.

Time Warner and MGM declined to comment.

Word of Time Warner's latest move emerged after MGM issued a statement labeling as inaccurate reports that the company might fetch as much as $5 billion.

Known for its lion logo, MGM's value is largely in its library of about 4,000 films, including the James Bond series and the Pink Panther films.

MGM shares were up 70 cents at $12.10 in New York Stock Exchange trading, with Time Warner stock down 18 cents to $16.17.

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