Orion Pictures looks to benefit from merger.

Four entities in deal will retain separate identities

Orion Pictures Corp. has formalized its merger plans by signing a definitive agreement with three other media and entertainment companies in a plan to breathe new life into the troubled studio.

The agreement will combine Orion with Actava Group, MCEG Sterling Inc. and Metromedia International Telecommunications Inc. into a new company named Metromedia International Group Inc. (MIGI).

Len White remains president and CEO of Orion, which will continue to operate under the Orion Pictures Corp. name. The other three companies will retain their names and executive officers as well.

Orion Chairman John Kluge will be chairman of the new company, with Orion Vice Chairman Stuart Subotnick as vice chairman of Metromedia International Group. Jack Phillips, president and CEO of Actava, will be president and CEO of the new company.

Kluge, chairman and president of New York-based Metromedia Co., a diversified company that has holdings in entertainment, telecommunications and the restaurant industry, began investing in Orion in 1987 and owns 56 percent of Orion's common stock. Kluge is also the primary owner of the privately-held Metromedia International Telecommunications.

How much of the new Metromedia International Group Kluge will control will be revealed in an upcoming filing with the Securities Exchange Commission.

Orion, a Los Angeles-based producer and distributor of motion pictures, is working to rebuild after filing for Chapter 11 bankruptcy protection in 1992. In emerging from bankruptcy later that year, Orion agreed not to use internally generated funds to produce any new films until its debt is substantially paid off.

This essentially turned Orion into a distribution company with very few films to distribute. On April 13 Orion announced that it had ended fiscal 1995 on Feb. 28 with a net loss of $50 million on revenues of $191 million. In 1994 it posted a net loss of $125 million on revenues of $176 million.

Cash infusion

But the merger agreement gives Orion the cash to get back into the business of making movies.

The money will come from the Actava Group, a cash-rich hard-goods manufacturing concern in Atlanta that has been looking to gain entry into the communications business. Actava has about $215 million in cash, marketable securities and notes on hand that can go toward making movies.

After the merger is finalized, the newly formed Metromedia International Group intends to restructure Orion's existing debt - now in the neighborhood of $224 million.

The new company also plans to begin acquiring and producing new motion pictures, then distributing them using Orion's existing - and now underused distribution network.

MCEG Sterling, a small production company in Century City, would give Orion an independent production arm that could begin film production immediately. MCEG Sterling also has an extensive library of films and television shows to be sold through the distribution network.

The final piece in the mix is the Kluge-owned Metromedia International Telecommunications, which has wireless cable and communications licenses in Eastern Europe and the former Soviet Republics - emerging markets prime for Orion's and MCEG Sterling's entertainment products, Kluge said.

"MIGI represents an unparalleled opportunity to capitalize on the convergence of the media and communications industries and to build a long-term value for all shareholders," Kluge said.

Added Phillips, "We intend to build on existing asset strength through strategic acquisitions of other media and communications properties."

Under the agreement, Orion shareholders will receive about 12.2 million Actava shares, or 0.61 Actava share per Orion share. MCEG Sterling shareholders will receive about 610,000 Actava shares, or 0.05 Actava share per MCEG share.

Metromedia International Telecommunications shareholders will receive about 10.2 million Actava shares, or 5.9 Actava shares per Metromedia share. The exact conversion ratios will be determined based on the average closing price of Actava's common stock during the 20 days prior to the closing of the deal.

Consummation of the merger is still subject to shareholder approvals, successful refinancing of the currently outstanding Orion debt and approval of Orion's board of directors. The transaction is expected to close this July.