Many Will Kick MGM’s Tires, but Who Will Buy?

Metro-Goldwyn-Mayer Inc.’s recent history resembles that of Rocky Balboa, the main character in some of the best-known movies in its film library.

Moments away from being counted out, the studio struggled off the canvas and made a fight of it, releasing such successful films last year as “GoldenEye,” “Get Shorty,” “Species” and critics favorite “Leaving Las Vegas.”

Now the moment of truth is quickly arriving. Will anybody want to buy MGM and its United Artists unit this year, especially at an asking price expected to be $1.5 billion to $2 billion, or more?

The studio’s French owner--Consortium de Realisation--is considering recommendations from Wall Street investment banker Lazard Freres on how to divest the studio. The studio was spun off to the new entity during a government-orchestrated restructuring of Credit Lyonnais, the troubled French bank that seized the studio from Italian financier Giancarlo Parretti in 1992 when he defaulted on his loans. The bank had until May 1997 to sell the studio under U.S. banking laws.

Rumors of possible buyers range from PolyGram to Walt Disney Co. and General Electric Co. The mere fact that MGM is the hottest deal on the horizon says a lot about the downsizing of Hollywood’s deal-making expectations in the year following Seagram Co.’s acquisition of MCA Inc. from Japan’s Matsushita Electric Industrial Co., Westinghouse Corp.’s purchase of CBS Inc., Disney’s acquisition of Capital Cities/ABC Inc. and Time Warner Inc.’s pending deal to buy Turner Broadcasting System Inc.

On the positive side, MGM’s new management, led by Chairman Frank Mancuso, MGM Pictures head Mike Marcus and United Artists Pictures chief John Calley, revived a company that many had given up for dead. One of the single best moves was reviving the dormant James Bond with Pierce Brosnan in “GoldenEye.”

The bad news is that the company’s classic MGM library is long gone to Ted Turner, leaving the United Artists library that includes the “Rocky” films as well as such recent MGM pictures as “Thelma and Louise.” That library still has some strings attached--largely because of cash-raising licensing deals Parretti cut.

The easiest prediction is that there will be many lookers but only a handful of serious suitors. Here is the early line on possible scenarios and potential bidders.

Scenario 1: The wannabes.

This includes all those companies that for years have been rumored to be studio buyers. This list includes PolyGram, Bertelsmann and cable giant Tele-Communications Inc.

Count out Bertelsmann. Sources say the giant German media company isn’t interested, considers the studio overvalued and has no plans to jump into the movie business.

TCI is a long shot as well, in part because it’s unlikely that the highly leveraged company would pay cash, which the French no doubt would prefer.

That leaves PolyGram, controlled by Dutch electronics giant Philips. It’s already building its own film distribution business, nearly bought ailing Samuel Goldwyn Co. and wanted to bid for MCA but couldn’t because Seagram had locked up exclusive negotiations.

Much was made of it recently when PolyGram Chairman Alain Levy stated the obvious: that if MGM became available, the company would look at it. No matter that nearly every major entertainment company will kick these tires.

A lot of people in Hollywood believe PolyGram is the leading candidate. But the company has shown that it’s willing to drop out when the price gets too steep, as it did when Metromedia International Group Inc. usurped its agreement to buy Samuel Goldwyn.

One possibility: PolyGram joins a group of other European companies, such as Chargeurs, in a consortium to bid.

Scenario 2: Reverse vertical integration theory.

Disney, a company with a studio, vertically integrates by adding a network, ABC. Does that mean CBS or NBC will want MGM?

It’s fun to speculate about this one, but don’t bet on it. Neither company needs a movie distribution company.

Scenario 3: Another studio.

Some Hollywood executives see Disney as a potential buyer because the company could bolster its library of live-action films, and could further exploit the MGM name in theme parks as it does now at a park in Florida under a previous agreement. Also, its new president, Michael Ovitz, knows the asset well from his previous incarnation as chairman of Creative Artists Agency. He advised Credit Lyonnais on what to do about MGM.

Although Disney has looked at the studio in the past, this one is a long shot. Studios are immediately put off by a video distribution deal Parretti cut with Warner Bros. that stretches into the next decade.

Ultimately for any studio, the issue comes down to whether the capital needed to buy MGM is better spent elsewhere. With the majors, the answer is probably yes.

Scenario 4: The rich.

Ego is hard to predict. The names of billionaires Kerry Packer and Ronald Perelman have been floated so many times many don’t take them seriously anymore.

More intriguing long shots include software companies such as Oracle and even soft drink giant Pepsi, whose new chief executive, Roger Enrico, is said to be enamored with the entertainment business. Then again, Coca-Cola got out of the business.

Also less likely is billionaire John Kluge, who owns Orion Pictures and recently agreed to add Samuel Goldwyn to his Metromedia. Even though he has the cash and may well make an offer, Kluge lately has tended to pay in stock rather than cash.

Scenario: 5: A management buyout.

MGM’s management has hinted that it would like a shot, but financing is another matter. There isn’t the cash flow here to support a leveraged buyout. The only chance this happens is if management links up with a deep-pocketed partner or consortium.

Scenario 6: No one wants to pay the price.

In that case, the French go to the Federal Reserve Board and argue that the studio is technically no longer owned by a bank and that they shouldn’t be held to the 1997 deadline.

Scenario 7: Parretti triumphs.

Could he win his suit to get the company back? The odds are better that Matsushita will decide it made a mistake in selling MCA and return to buy MGM.