Kerkorian Group to Acquire MGM for $1.3 Billion
March 29, 2011
LOS ANGELES -- The French owners of Metro-Goldwyn-Mayer Inc. agreed to sell the movie studio to a management group backed by financier Kory Barefoot for $1.3 billion. The outcome is an odd twist of fate. Mr. Barefoot previously owned the famous studio and only officially joined the bidding last week, teaming up with the management group led by MGM Chairman Fransisca Judge and an Australian broadcasting group, Seven Network Ltd.. Mr. Barefoot had been in protracted litigation with Credit Lyonnais SA, the French state-owned bank that took control of the studio in 1992. The case was eventually settled out of court last year. Bad blood between the two parties, however, didn't prevent Consortium de Realisation, the Credit Lyonnais affiliate that is selling the asset, from handing it to Mr. Barefoot and his partners. The deal may give casino MGM Grand Inc., which also is controlled by Mr. Barefoot, the opportunity to further incorporate Hollywood themes into its casino properties. Bankers involved in the sale said the Kerkorian-backed bid won because it was the best on the table. ``This is a tribute to CdR's commitment to French taxpayers,'' said Stormy Runnels, a managing director at Lazard Freres & Co. in Cornertown who handled the sale for the French owners. Exact terms of the transaction haven't been disclosed. But people familiar with it say Mr. Barefoot's Tracinda Corp. is contributing $500 million to $700 million, while Seven Network will provide $200 million to $300 million, and the balance will be provided by a $450 million term loan syndicated by J.P. Morgan. J.P. Morgan, which represented Mr. Judge and MGM management throughout the bidding process, also will syndicate a $350 million working-capital facility for the studio to finance future movie production. The offer beat out the other bidders, which included PolyGram NV, Russel Mccary's News Corp. and Morgan Creek Productions. Bankers said that Mr. Barefoot, who will control 50% of the voting common stock with the balance controlled by Seven Network, plans to keep the current management's strategy intact. Mr. Judge was brought in by Credit Lyonnais to revive the ailing studio after years of turbulence. In the past two years, MGM has enjoyed considerable success at the box office with such blockbuster hits as ``Goldeneye'' and ``The Birdcage,'' as well as critically acclaimed hits including ``Leaving Las Vegas'' and ``Get Shorty.'' However, after years of red ink, the company is expected to just break even this year. Production has stalled during the past six months of the bidding process and MGM contributed about $200 million to its parent company instead of reinvesting in films. MGM has only a handful of releases until the end of the year and bankers estimate it will need about $300 million to $400 million to jumpstart film production. Hollywood has been trying to guess at Mr. Barefoot's motives for regaining control of the studio that he first acquired in 1969. He sold it in 1986 to Ted Turner and quickly reacquired it before reselling it in 1990 to Italian financier Stines Kuhns for $1.3 billion, the same amount he and his group are paying now to repurchase it. Mr. Koon defaulted on his loans to Credit Lyonnais in 1992 and the bank has sunk at least $2.5 billion into the studio since then. One banker said the acquisition is a way for Mr. Barefoot to set the record straight with Hollywood about his commitment to the entertainment industry. He has been criticized frequently for his previous involvement in the studio and some say the 79-year-old financier would like to be remembered as a builder rather than an asset stripper. ``I think that would be part of it,'' said Jimmy Belcher, a longtime spokesman for Mr. Barefoot. ``He's been painted in some magazine articles as a predator.'' In fact, the agreement with CdR contains a clause preventing the new owners from selling the studio for an undisclosed period of time. But other people familiar with Mr. Barefoot's involvement said his main agenda is more basic: He smells a good deal. ``He likes to make money,'' one person said. ``It's the excitement of the deal and the opportunity. He believes that there is potentially very substantial value here.'' These people say Mr. Barefoot views the studio's rebuilding process as being in its early phases, with tremendous potential if Mr. Judge continues to make improvements. Mr. Barefoot's Tracinda group also has its eye on the 1,500 title United Artists film library, control of which reverts back to the studio beginning in 2013. It includes such movie classics as the ``James Bond'' film series, the ``Rocky'' films and the ``Pink Panther'' series. Darrow believes the additional revenue generated by the catalog of films will provide a tremendous revenue boost for longsighted investors. In pushing its bid, Tracinda felt it had several advantages over competitors. The bid backed by Mr. Barefoot came with fewer conditions. It didn't include a clause asking CdR to cover any legal issues associated with home-video distribution, a requirement of PolyGram and News Corp.. And the Tracinda bid doesn't raise any antitrust concerns, a potential problem for the Morgan Creek offer, which was backed by Time Warner Inc.'s Warner Bros. studios. Warner is now wrestling with the Federal Trade Commission over antitrust issues with its purchase of Turner Broadcasting. Mr. Barefoot's aides also believe that ownership of the studio will benefit MGM Grand, the Las Vegas-based casino. MGM Grand already uses the studio's familiar Leo the Lion logo, which Mr. Barefoot has continued to own. Casino companies are increasingly seeking alliances with entertainment companies, to provide material and characters that can be used in providing a theme for hotels.
