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Time Warner Out of MGM Race

9/13/2004 6:24 AM Eastern

Less than one day after published reports said Sony Corp. had upped its bid to purchase Metro-Goldwyn-Mayer Inc. to $5 billion, Time Warner Inc. has dropped out of the running.

“Although MGM is a valuable asset, we have decided to withdraw our bid,” Time Warner chairman and CEO Dick Parsons said in a prepared statement. “As we pledged to our shareholders, we approach every potential acquisition with strict financial discipline. Unfortunately, Time Warner could not reach agreement with MGM at a price that would have represented a prudent use of our growing financial capacity. We are confident that there are other capital-allocation choices that will enable us to continue to build shareholder value.”

Although Time Warner had never publicly acknowledged that it was bidding on MGM, published reports last week said that the media giant was the front-runner for the studio, offering $4.6 billion for the assets. Time Warner’s bid would have included the assumption of $2 billion in MGM debt and $2.6 billion in cash.

While that bid was lower than the one Sony put on the table -- $4.8 billion -- it was believed to be less complicated. The Sony bid relied on the cooperation of two private-equity firms -- Providence Equity Partners Inc. and Texas Pacific Group -- to agree on the deal.

But in several published reports Monday morning, Sony was said to have increased its bid to $5 billion, including the assumption of the MGM debt.

That came closer to the price that MGM’s largest shareholder, Kirk Kerkorian, was said to be asking for his stake. Kerkorian -- who owns a 74% controlling interest in MGM -- had been said to want the bidding to start at $5 billion.

MGM would have been a good fit for Time Warner. Its vast film library -- with more than 4,000 titles, including the James Bond series and Rocky films -- could have bolstered Time Warner’s own Warner Bros. film studio and provided library content for its cable networks like Turner Classic Movies, TBS and Turner Network Television.

With MGM’s vast film library, some analysts had speculated that a purchase could have lead to a separate MGM cable channel that would be offered to cable and satellite operators.

While Time Warner’s decision appeared to have put Sony in the driver’s seat, there is no guarantee that a deal will be done. Kerkorian has sold his MGM stake twice since first acquiring it in 1969. Since reacquiring the stake in 1996, Kerkorian has tried to sell his MGM holdings several times, pulling them off the market when he did not get the price he wanted.

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