Bidding for MGM Hits Second Phase

The bidding for Metro-Goldwyn-Mayer moved into the second stage this week as the group of potential buyers begins to narrow, with the front-runners remaining Europe’s PolyGram and producer Arnon Milchan’s New Regency Productions.

Next up for potential buyers is a more detailed examination of finances and contracts known as due diligence.

The first step, which ended Wednesday, was effectively a filtering process to determine the most serious and interested bidders. Several companies complained about the lack of specifics in the summaries they were given.

MGM, which has staged a comeback with such hits as “The Birdcage,” “Get Shorty” and “GoldenEye,” is being put on the block by Credit Lyonnais, the French Bank that inherited the studio when it formally foreclosed on former owner Giancarlo Parretti in 1992. Credit Lyonnais’ investment bankers, Lazard Freres & Co., are said to be hoping to get at least $1.5 billion for the studio, a price regarded as too high by a number of Hollywood executives because several key rights, like video distribution, are licensed for several more years.

From six to 10 companies are said to be showing the most interest. Among the companies known to have taken a look are Walt Disney Co., Capella Films and even soft drink giant PepsiCo Inc., whose new chief executive, Roger Enrico, is said to be interested in expanding into entertainment.

In addition, MGM’s current management, led by Chairman Frank Mancuso, MGM Pictures chief Mike Marcus and United Artists head John Calley, are said to have contracts giving them the opportunity to form an investment group to bid.

One executive with a company that has been considering a bid said that no potential buyer can be formally eliminated until a deal is signed, adding that some larger companies will probably sit back and wait to see what kind of offers come to the table. Bidding in Hollywood often works that way. In recent months, tentative deals to buy entertainment companies Carolco Pictures and Samuel Goldwyn Co. seemed solid, only to be trumped by last-minute offers.

The most public group in the bidding has been New Regency, a Warner Bros.-affiliated production company known for such films as “JFK,” “Heat” and “The Client.” Backed by South Korean industrial giant Samsung as well as Australian billionaire Kerry Packer, the company has deep pockets. Warner is also expected to be affiliated with the bid because it currently has video distribution rights to MGM films.