MGM/UA says to heck with movies, let's sell the company again.

MGM/UA says to heck with movies, let's sell the company again

Company scraps plans to rebuild studio, entertains hefty bid from Italian financier

MGM/UA, a company known for 20 years of management loop-the-loops since Kirk Kerkorian acquired controlling interest in 1969, has dumped the "controlled rebuilding" program announced to shareholders early this year.

With the signing of a "definitive agreement" with Italian financier Giancarlo Parretti to sell MGM/UA to Beverly Hills-based Pathe Communications last month, Jeffrey C. Barbakow, chairman and chief executive officer at MGM/UA, has all but scrapped ambitious plans to make a full schedule of movies again.

The $20 a share Pathe offer is estimated to be worth $1 billion. Security deposits of $50 million each are due April 9, May 9 and June 9.

"The financing is still somewhat of an unknown and is the crux of the situation," said Jeffrey Logsdon, an analyst with Los Angeles-based Crowell Weedon & Co.

The sale, completed or not, puts a crimp in Barbakow's plans to rebuild the company, he said.

"Whenever there's a chance that there will be a change of management, a company has to go into a state of suspended animation," Logsdon said. "You have to suspend plans because you don't want to hurt yourself, commit to projects or make mistakes. If we get past April 9, we might see some plans by MGM/UA to go ahead. But right now MGM/UA is in this state of suspended animation."

Though Barbakow said in January that he "would always listen carefully and consider certain favorable alternatives relating to the possible sale of this company," he announced to shareholders that he planned to put in a better performance than 1989 when MGM/UA lost $75 million.

Now, energy is being pumped into the Pathe acquisition.

At the Jan. 9 shareholder's meeting, Barbakow announced the dawning of a new era at his Culver City- based entertainment company. Supported by Kerkorian, who controls about 36.3 million (82 percent) of MGM/UA's shares, Barbakow announced that he would invest 100 percent of the company's energy to generating positive cash flow, enhancing MGM/UA's cash balances, further reducing its debt and increasing the value of the MGM/UA's lion-hearted 1,650 title film library.

"If you slow down to a crawl and you're still for sale, you have to get some movement going," said Logsdon. "At the time controlled rebuilding was announced, I don't think there was any deal on the table. Jeff (Barbakow) had to create some impression of momentum."

A company spokesperson hedged, when asked about the status of controlled rebuilding at MGM/UA.

"We've made some progress in some divisions," said Mary Stevens Hardy, director of corporate communications at MGM/UA. "But, when you're in the middle of a deal, it is hard to go ahead. Things are changing around here. Because of Security and Exchange regulations, it just isn't wise to begin talking about them. Once everything gets back in order, I'm sure we'll be more than willing to tell about MGM/UA's future plans."

Analysts estimated it would cost $300 million for Barbakow to put the roar back in MGM/UA and produce at least 11 films. The company had hit a creative standstill during Kerkorian's mega-publicized attempts to unload MGM/UA -- a company with the third most-recognized corporate symbol, behind Coca-Cola and Walt Disney, in the United States.

The failed $1.5 billion sale to Australian-based Qintex Entertainment Ltd. and the lengthy negotiations with Australian-based News Corp. blocked the company's creative juices throughout 1989.

"The company had about 18 solid months of transition," said Logsdon. "Moreover, for a time, Qintex's management was basically running MGM. That is bound to have a slowing effect. There's probably been a lesson learned there, I don't think that we'll see any kind of change-over like that in management with the Pathe transition. They didn't exactly become a locomotive during the failed acquisitions."

Rather, the company became a creative no-man's land. While Disney's Touchstone Pictures receives about 75 project proposals in a week, MGM/UA is lucky to receive 20. "Rain Man," which came out in 1988 and brought in more than $170 million, was the last big score, and production on it started well before major management shakeups at the studio.

Even before the botched bids of 1989, the drain of movie-making talent had begun. Former MGM/UA movie chief Alan Ladd Jr., MGM/UA chairman Lee Rich and United Artists head Tony Thomopoulos all bailed out, furious that financial manuevering was preventing them from making movies.

When asked Jan. 9 by shareholders if he would surround himself with movie-makers, Barbakow, a former investment banker from Merrill Lynch Capital Markets, said he was confident he could make the transition from the business of finance to the business of film. Barbakow said he was confident MGM/UA's present management could produce quality films.

While the company moved quickly with an action-adventure film called "Timers," buying the script for $350,000 and announcing that production would begin in September, Barbakow's rebuilding strategy ended up on the cutting room floor.

"It takes 12 months to 24 months, at least, to take a project all the way through," said Logsdon. "Controlled rebuilding was the beginning of developing projects in earnest again, and it is safe to say that they were at the very earliest stages of putting together projects before Pathe's bid."

With $125 million already received from Pathe, an installment of $50 million expected next Monday, and two more $50 million payments expected May 9 and June 9, Barbakow himself may be a thing of the past.

He stands to make $30 million as a closing bonus for selling the company. Stock and options owned by Barbakow are worth another $10.4 million.

"Does that color his thinking? Is he still breathing?" asked and answered Logsdon. "Jeff's a really honorable guy who feels that he has to represent the interests of his shareholders. But at MGM he has one major shareholder to represent, Kerkorian. And that shareholder wants to sell."

PHOTO : Kerkorian: Selling again?