MGM Seeks $600 Million to Make `Hobbit,' etc..

[carl stromberg]

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MGM Seeks $600 Million to Make `Hobbit,' `Pink Panther' Movies

Aug. 19 (Bloomberg) -- Metro-Goldwyn-Mayer Inc., the movie studio controlled by private-equity firms, is raising as much as $600 million to produce some of its biggest films including ``The Hobbit.''

The financing will be completed in about three weeks, Jeff Pryor, a spokesman for Los Angeles-based MGM, said yesterday in an interview. He declined to discuss terms or investors.

MGM's would be the first movie fund completed since Deutsche Bank AG and Viacom Inc.'s Paramount Pictures scrapped plans last month to raise $450 million. The MGM fund includes ``The Hobbit,'' being produced by ``Lord of the Rings'' director Peter Jackson, and ``Pink Panther'' movies starring Steve Martin, Pryor said.

``In the past, movie studios haven't offered Wall Street the opportunity to participate in their biggest and best films,'' Pryor said. ``There is a lot of interest because of the quality of product we have.''

Paramount blamed market conditions for unfavorable terms in scrapping its fund on July 15, and Deutsche Bank subsequently closed its division dedicated to film financing as demand dwindled.

MGM films including ``Charlie Bartlett'' have taken in $46.5 million in U.S. and Canadian theaters this year, trailing behind all of the major studios and down 76 percent from the same period in 2007, according to Box Office Mojo LLC. Time Warner Inc.'s ``The Dark Knight,'' this year's biggest movie, has taken in $471.1 million since its July 18 release.

Box Office Drop

Paula Wagner resigned last week as chief executive officer of MGM's United Artists label, after releasing one film, ``Lions for Lambs,'' in two years. The movie, starring her production partner, Tom Cruise, cost $35 million to make and made $15 million in domestic ticket sales, according to Internet Movie Database Inc.

Wagner and Cruise, brought in to revive UA in November 2006, raised $500 million in August 2007 to make as many as four films a year. The day of her departure, MGM moved up the release of Cruise's ``Valkyrie'' to Dec. 26 from a planned Feb. 13.

``The Hobbit,'' being directed by Guillermo del Toro, is scheduled for release in December 2011. Jackson's three ``Lord of the Rings'' movies, distributed by New York-based Time Warner, each cost about $95 million to make, according to Imdb.com.

The MGM financing will also be used for next year's ``Fame,'' a remake of the 1980s musical, Pryor said. Investors will have access to future projects that include ``Bond 23,'' the working name of the ``James Bond'' installment that follows the Nov. 7 release ``Quantum of Solace,'' Pryor said. ``Bond 23'' is scheduled for 2010, according to Imdb.com.

2005 Buyout

MGM Chairman Harry Sloan is trying to rebuild the studio by reviving past successes such as ``Rocky'' and developing new film series after the company was taken private in April 2005 in a $5 billion buyout led by Providence Equity Partners and TPG Inc.'s TPG Capital LP.

Providence, based in Providence, Rhode Island, has a 29 percent stake in MGM, while TPG, based in Fort Worth, Texas, has 21 percent. Sony Corp. and Comcast Corp. each own 20 percent. DLJ Merchant Banking Partners has 7 percent, and Quadrangle Group with 3 percent.

[Goldeneye]

Two updates to this story. This is the fist part.

businesssheet.com
Hilary Lewis
Aug 23, 2008
Whoa! We thought that Kirk Kerkorian's $3 billion bid for MGM was just a random show of interest. Now, the studio's private-equity owners have asked Goldman Sachs to find buyers, and they're valuing the studio at $5.2 billion.

BusinessWeek: [T]hose with knowledge of the overtures say the company has asked Goldman, which advised the studio when it was last sold in 2004, to focus primarily on so-called strategic buyers—namely other entertainment companies that would likely fold MGM into existing operations. Among those who are said to have taken a look, and so far passed, is the Mumbai-based Reliance ADA Group, which is reportedly in the final stages of providing $500 million in funding to director Steven Spielberg to establish a new DreamWorks film company...

(Yes, we've heard that before. Check out our DreamWorks-Reliance Deal Delay Clock).

Sony paid roughly $5 billion in debt and equity in September 2004 to acquire the then-publicly traded MGM from its majority owner, billionaire Kirk Kerkorian. In a twist, Kerkorian is said to have recently offered roughly $3 billion for the 84-year-old company, a bid that was quickly dismissed.

The timing of this announcement is surprising, since CEO Harry Sloan just signed a new contract keeping him at the top of the studio for the next three years. BusinessWeek says he'll stay even if a new buyer is found (not that he'll have anything to say about it). Furthermore, the studio is quickly ramping up production under veteran executive Mary Parent.

You'd have to figure MGM would be sold or taken public eventually. It was bought by a consortium of private-equity firms, so it was inevitable that they would pursue an exit strategy. But it's unlikely anyone will buy MGM for $5.2 billion. The studio's had very few hits of its own, making most of its money off of its 4,000-film library.

Last year that catalog generated $558 million in cash, but the DVD market has begun to decline seriously. At the end of August, the company will get the last of a series of distribution fees totaling $625 million from News Corp.'s Twentieth Century Fox, which distributes MGM's DVDs. The private company lost $400 million in its most recent fiscal year, which ended in March, MGM told The New York Times recently...

MGM is still struggling under massive debt—$3.7 billion from the initial acquisition and $250 million it has committed from a $500 million revolving credit line its CEO, Harry Sloan, arranged for the company's United Artists unit. The first film under that fund—the 2007 Robert Redford-Tom Cruise-Meryl Streep flick Lions for Lamb—lost about half of MGM's $75 million investment. Another UA film, the World War II thriller Valkyrie, will cost $180 million to produce and market later this year.

UA, however, faces a ticking clock with its lender, Merrill Lynch, according to film industry sources. The MGM unit is required to make four films by May to keep its credit line, according to people familiar with the arrangement, and faces performance requirements if it's to continue drawing down the money.

Who might want MGM?

Most likely a "strategic buyer." Several are said to be interested in kicking the tires. Qualia Capital, an investment fund focused on media and entertainment, has already been approached by two different groups about acquisition financing, says one source with knowledge of the overtures. The New York-based fund refused comment. The most likely buyers include Sony, which owns a 20% stake. Fox might also be a buyer. Fox refused comment; Sony declined to comment.

We'd put our money on Sony or Fox, which also makes Fox an even less likely potential distributor for DreamWorks. But what about Terry Semel, who was rumored to be interested last month, or Ryan Kavanaugh's Relativity Media, which has put up some money for a couple of upcoming MGM films and the Financial Times reported was trying to arrange more?

[Goldeneye]

Reuters
By Alex Dobuzinskis
Tue Aug 26, 2008

Hollywood studio Metro-Goldwin-Mayer said on Monday it was not for sale but is exploring "enhancements" to its long-term capital structure that could include a stock offering or debt refinancing.

The move comes as Hollywood struggles to raise funding for movies as the credit crisis tightens.

MGM has retained Goldman Sachs to explore options for dealing with its $3.7 billion in debt, and an initial public offering of stock is one of several possible alternatives MGM could consider, said Jeff Pryor, a spokesman for the studio.

The company could also seek to refinance its debt or turn to the bond market, he added.

"We don't know right now because that's what Goldman is doing," Pryor said. "They haven't given us alternatives yet."

The company, responding to a New York Post report that it hired Goldman Sachs (GS.N: Quote, Profile, Research, Stock Buzz) to look into a possible sale, also said the company was not for sale, that it had enough financing to meet its needs and that its private equity owners were pleased with the company's momentum.

MGM, in a statement, added that "there is no 'asking price' for the company."

Reports about MGM's possible sale intensified in the wake of the departure of producer Paula Wagner from MGM's United Artists studio earlier this month. Wagner, who is a movie producing partner with actor Tom Cruise, was chief executive of UA, but left to produce movies again.

United Artists, in which Cruise and Wagner both have stakes, last year secured $500 million in financing through Merrill Lynch (MER.N: Quote, Profile, Research, Stock Buzz) to fund 15 to 18 movies over the next five years.

The Post, citing sources close to the situation, also reported that Merrill was examining its contract with UA as the bank looks to revise the deal on more favorable terms, in the wake of Wagner's departure.

A Merrill representative declined to comment on its relationship with UA.

The credit crunch sweeping the United States has slowed financing for Hollywood movies from investors who had poured billions into film projects in recent years, analysts said.

"Capital access is more restricted now in the film business than it's been in a decade," said Laura Martin, senior media analyst with Soleil Securities.

"Because the film business is hit driven, there is enormous risk when financing films, and the current credit squeeze has lessened investors' appetite for risk," she said.

Pryor said the credit crunch has complicated MGM's efforts to secure financing for its own slate of movies.

"We feel that we closed the Merrill Lynch deal for UA when the market was a very tough market, and we continue to have consultations with financial alternatives in the marketplace for financing an MGM slate," he said.

But MGM's inability to secure financing has not hurt the studio, because production has already slowed in anticipation of a possible strike by the Screen Actors Guild, Pryor said.

David Joyce, an analyst with Miller Tabak + Co, said other studios have also slowed production because of the credit crunch. But a feared SAG strike was even more pressing, he said.

MGM is owned by a consortium of companies, including private equity firms Texas Pacific Group and Providence Equity Partners, Sony Corp (6758.T: Quote, Profile, Research, Stock Buzz)(SNE.N: Quote, Profile, Research, Stock Buzz) and Comcast Corp (CMCSA.O: Quote, Profile, Research, Stock Buzz). (Reporting by Alex Dobuzinskis; Editing by Jeffrey Benkoe, Richard Chang)