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$5 BILLION MGM FIGHT OVER TIME-WARNER BOWOUT CLINCHES DEAL FOR SONY.



Byline: Greg Hernandez Staff Writer

CENTURY CITY - Sony Corp. agreed in principle Monday to pay nearly $5 billion for Metro-Goldwyn-Mayer Inc., hours after former front-runner Time Warner Inc. announced that it had dropped out of the bidding.

The deal has Sony and its investment group partners, Texas Pacific Group, Providence Equity Partners Providence Equity Partners is a private equity firm headquartered in Providence, Rhode Island that focuses on investments in media and telecommunications. It is one of the largest private investment firms specializing in equity investments in media and communications companies. , and DLJ Merchant Banking Partners DLJ Merchant Banking Partners (DLJMB) is a LBO-focused private equity firm of Credit Suisse. DLJMB has offices in New York, London and Los Angeles. External links
  • DLJ Merchant Banking Partners
, buying MGM MGM
 in full Metro-Goldwyn-Mayer, Inc.

U.S. corporation and film studio. It was formed when the film distributor Marcus Loew, who bought Metro Pictures in 1920, merged it with the Goldwyn production company in 1924 and with Louis B. Mayer Pictures in 1925.
 for about $12 a share, or about $2.9 billion. The new owners would also assume $2 billion of MGM debt.

MGM received a nonrefundable security deposit of $150 million on Monday and is expected to recommend the proposed merger to its board by Sept. 27.

A dominant movie studio during Hollywood's Golden Age, which since has since evolved into a smaller mini-major, MGM has a highly coveted cov·et  
v. cov·et·ed, cov·et·ing, cov·ets

v.tr.
1. To feel blameworthy desire for (that which is another's). See Synonyms at envy.

2. To wish for longingly. See Synonyms at desire.
 4,000-plus title film library that has made it an attractive potential acquisition to larger media conglomerates.

With the lucrative DVD DVD: see digital versatile disc.
DVD
 in full digital video disc or digital versatile disc

Type of optical disc. The DVD represents the second generation of compact-disc (CD) technology.
 market still growing at a rapid pace, MGM's library, which includes the valuable James Bond, Rocky and Pink Panther franchises, would provide an enormous cache of old movie classics for any buyer to reformat (1) To change the record layout of a file or database.

(2) To initialize a disk over again.
 onto DVD.

``It obviously made sense for both Sony and Time Warner given the flow of product the MGM library would provide for them,'' said media analyst Robert Routh of Jefferies Group, Inc. in New York.

MGM has been a minor player theatrically in recent years, with its James Bond movies, including 2002's ``Die Another Day,'' its only real blockbusters. Hits such as ``Legally Blonde,'' ``Barbershop,'' ``Jeepers jee·pers  
interj.
Used to express surprise or annoyance.



[Alteration of Jesus1.]
 Creepers'' and their sequels have alternated with such flops as ``Windtalkers,'' ``Rollerball'' and the recent ``Wicker Park.''

Kirk Kerkorian had sold MGM twice before, regaining control of it eight years ago. It had long been clear that Kerkorian was interested in selling his investment for the right price.

Time Warner Chief Executive Officer Dick Parsons called MGM a ``valuable asset'' Monday but said his media group chose not to enhance its bid, which had reportedly been $4.6 billion.

``We approach every potential acquisition with strict financial discipline,'' Parsons said in a statement. ``Unfortunately, Time Warner could not reach agreement with MGM at a price that would have represented a prudent use of our growing financial capacity.''

Routh believes that Time Warner could have positioned itself as the dominant home video force by combining the MGM and Warner Bros BROS Brothers
BROS Benefits and Retirement Operations Section (King County, Washington)
BROS Barnes and Richmond Operatic Society (London, UK) 
. film libraries, especially with consumers building DVD collections and hungry for titles in that format.

``It would have made a lot of sense in my opinion for Parsons to have pursued it,'' Routh said. ``I think Time Warner bowing out may have been a little shortsighted short·sight·ed
adj.
1. Nearsighted; myopic.

2. Lacking foresight.



shortsight
.''

But he added that Time Warner also had its eye on buying Adelphia Communications, which may have forced the conglomerate into a choice over how to spend its capital.

MGM and Time Warner merger talks, which had been revived back in December, had heated up to fever pitch in recent weeks. Time Warner had already performed some in-depth due diligence on MGM in 2002, when it had examined a possible merger at the asking price of $7 billion.

``We are confident that there are other capital allocation choices that will enable us to continue to build shareholder value,'' Time Warner's Parsons stated Monday.

With more than 60 million U.S. homes projected to have DVD players installed by the end of the year, entertainment industry leaders believe the way to keep the current DVD craze alive is by introducing high-definition DVD technology that represents a clear quality improvement over the standard DVD.

But there are several different types of specifications floating around, including one called Blu-Ray, which is championed by Sony Corp, and HD-DVD HD-DVD High Definition Digital Versatile Disk , being developed by Toshiba and NEC (NEC Corporation, Tokyo, www.nec.com, www.necus.com) An electronics conglomerate known in the U.S. for its monitors. In Japan, it had the lion's share of the PC market until the late 1990s (see PC 98).

NEC was founded in Tokyo in 1899 as Nippon Electric Company, Ltd.
. The major studios have not publicly said which format they favor at this point.

Routh said that acquiring MGM would be a huge boost in pointing the competition in the direction of Blu-Ray. This would be a reversal from the 1980s showdown between VHS (Video Home System) A half-inch, analog videocassette recorder (VCR) format introduced by JVC in 1976 to compete with Sony's Betamax, introduced a year earlier.  and Betamax, the latter of which had been developed by Sony and ultimately became useless.

``For Sony, it makes a lot of sense,'' he said. ``Maybe this time they will win the war for standard setting which could provide an upside for years to come.''

Greg Hernandez, (818) 713-3758

greg.hernandez(at)dailynews.com
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Title Annotation:Business
Publication:Daily News (Los Angeles, CA)
Geographic Code:1USA
Date:Sep 14, 2004
Words:712
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