Sony Corp. struck a tentative deal on Monday to buy Metro-Goldwyn-Mayer Inc. for about $4.8 billion, promising to spell the end of MGM’s 80-year run as a stand-alone Hollywood movie studio.
The agreement by Sony and three investment partners came after five months of negotiations and a bidding war orchestrated by MGM. Sony and media conglomerate Time Warner Inc. jockeyed for position to acquire MGM and its valuable library of 4,000 movies, which includes the James Bond franchise, the “Rocky” film series and such recent hits as “Legally Blonde” and “Barbershop.”
Sony’s victory came after it enlisted cable giant Comcast Corp. in a venture to create new channels that would feature MGM movies. That deal with Comcast, which also is expected to invest in MGM, was the impetus for Sony sweetening its bid and trumping Time Warner’s $4.6 billion offer.
Once one of the movie industry’s seven major studios, MGM in the past two decades has operated as a dramatically scaled-down version of what it was during Hollywood’s golden era in the 1930s and `40s.
Today, as a pure movie studio, it is dwarfed by such media behemoths as 20th Century Fox parent News Corp. and Paramount Pictures owner Viacom Inc., whose empires also extend into television broadcasting, publishing and pay-TV.
Although Sony is expected to preserve the MGM name and its famed lion logo in a movie-production arm, the sale would eliminate a Hollywood studio at a time when the industry is tightening its belt because of escalating production and marketing costs.
“As an agency, we like to see more buyers, not less,” said International Creative Management Chairman Jeff Berg. “But this deal represents a further and inevitable consolidation of the film industry.”
“It was once the premier studio of all time,” said former MGM chief Alan Ladd Jr. “It’s been dwindling away at a slow pace for years. There’s nothing that can save it, so it’s best to dispose of it.”
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MGM confirmed the tentative deal in a terse statement issued late Monday.
The sale would mark the third exit from Hollywood and MGM for 87-year-old gaming billionaire Kirk Kerkorian, who has owned the studio twice before. Many in Hollywood have speculated for years that Kerkorian, considered by Wall Street to be one of the nation’s savviest investors, would sell the Los Angeles studio for the right price.
But previous efforts, including a near miss by Time Warner late last year, unraveled. And MGM insiders had indicated that Kerkorian, who owns 74 percent of the studio, would not agree to unload it for anything less than $5 billion.
A host of final details must be worked out by Sony, which risks forfeiting a non-refundable $150 million deposit made to MGM if it is unable to complete the deal. Even if an agreement is reached, it could take months to clear regulatory hurdles.
The prospective $12-a-share acquisition would pay MGM shareholders $2.85 billion, $2.1 billion of which would go to Kerkorian. Another $1.9 billion would pay off debt taken on this year to pay stockholders a special $8-a-share, tax-free dividend. MGM is expected to recommend the deal to its board by Sept. 27.
Sony is expected to put up $250 million to $300 million of the $4.8 billion and would run the operation. Its investment team consists of Texas Pacific Group, Providence Equity Partners and DLJ Merchant Banking Partners. If Comcast joins in, sources said, it likely would kick in the same amount as Sony.
Sony is likely to take full control of MGM by buying out the other investors in the next three to five years.
Sony is eager to get its hands on the MGM library, which includes 10,000 TV episodes, at a time when DVDs and cable ventures have made such libraries golden.
Once lorded over by the likes of legendary moguls Louis B. Mayer and Irving Thalberg, MGM boasted of having “more stars than there are in the heavens” and made classic films ranging from “The Wizard of Oz” to “Ben-Hur.”