MGM/UA purchase by Pathe is 'more on track' this week.

MGM/UA purchase by Pathe is `more on track' this week

Pathe Communication Corp.'s $1.22 billion bid to buy MGM/UA Communications came further into focus last week when the names of banks and three potential equity partners were disclosed to the Securities and Exchange Commission and investors.

The proposed sale of MGM/UA to Pathe, which was scheduled to close June 15 but may be extended to June 23, has been the subject of skepticism from the financial community since it was announced in April. Wall Street analysts have questioned where Giancarlo Parretti, president and chief executive officer of the $418 million (revenues) Pathe, would find the financing to buy $244 million (revenues) MGM/UA.

Last week's disclosure of additional lenders, coupled with an announcement of loosened restrictions related to Time Warner Inc.'s loan of $650 million to Pathe, indicated that Parretti is, indeed, closing in on the lion.

"It is appears more on track than it had, said Jeffrey Logsdon, an entertainment analyst at Los Angeles-based Crowell Weedon & Co. "Up until the last few days, there had been very little information disclosed as it relates to financing. Now, with the disclosure of names, it may give some people comfort that Pathe will close the deal."

In a June 13 Securities and Exchange Commission filing, it was disclosed that Time Warner has lifted a restriction related to the $650 million loan that the communications giant gave to Pathe in April. With certain rights to the MGM/UA library used as collateral, the crucial loan was granted to Pathe through the Warner Brother's studio. New York-based Time Warner stands to get lucrative strategic distribution rights in a related deal, if Parretti is successful in buying MGM/UA.

The Time Warner restriction, which would have required Pathe give 65 percent of its profits to Warner Bros. until the debt is paid off, would have been effective as soon as Pathe bought MGM/UA. Time Warner has agreed to drop that stipulation, though Pathe is still obligated to repay the $650 million loan, a Pathe spokesman said.

On June 12, Parretti and Florio Fiorini, chairman of Pathe, announced that they had secured $119.5 million of the last $368 million needed to complete the transaction from several foreign banks. The money was lent to Comfinance S.A. of Luxembourg, a holdings company owned by Parretti and Fiorini. The loans will be provided by the following lenders:

* Banque Arabe et Internationale d'Investissement will provide a $75 million to Comfinance.

* S.I. Bank Company Ltd. of Victoria, Seychelles will provide $17 million. The deal will be accomplished by discounting a $25 million note that was issued in 1988, when Pathe sold some of its U.S.-based theaters.

* Credit Lyonnias Bank Nederland N.V., the largest lender to the independent film industry, will provide $15 million to Comfinance. The Paris office of Credit Lyonnais handles the banking for Parretti's real estate and travel operations.

* United Overseas Bank will lend $12.5 million.

Parretti and Fiorini also announced that they are discussing the sale of minority equity stakes in MGM/UA. England-based Rank Laboratories and West Germany-based RTL-Plus, a television broadcasting company, have been identified as companies interested in buying a stake.

Also last week, Hollywood power-hitter Andrew Vajna was identified the third potential equity investor, as well as key player on the production side of MGM/UA, if Parretti and Fiorini are successful in their bid. Vajna, former co-chairman of Carolco Pictures Inc. sold out to his former partner and co-chairman Mario Kasser on Nov. 7, 1989. In January, Vajna launched Cinergi Productions in Beverly Hills. Last week, Pathe announced in a solicitation to MGM/UA stockholders that it has a preliminary agreement with Vajna to produce motion pictures. Pathe also said that Cinergi could buy up to 5 percent of MGM/UA's stock. Cinergi received the right to sell the stock back at purchase price plus interest within six months after the proposed sale goes through.

The involvement of the three equity owners, Rank Laboratories, RTL-Plus and Cinergi could entice additional investors to come aboard, said Logsdon.

"It may entice people to participate," said Logsdon. "The involvement of the three companies basically factors in money. Some of Pathe's financing is very short-term. The objective now is to turn the short-time financing into long-term financing and, eventually, into long-term equity."

Selling the majority of his equity ownership will be Kirk Kerkorian, the reclusive mogul who controls 81 percent of MGM/UA's common. In a recent Securities and Exchange Commission filing, Kerkorian said that he will retain no more than 1.9 percent of the shares after the Pathe buyout.

Analysts had speculated that Kerkorian would maintain a 15 percent ownership in MGM/UA. The latest announcement places additional pressure on Parretti and Fiorini, who now must find an additional $130 million to pick up the 13.1 percent that Kerkorian has committed to sell.