An open bidding war for MGM, the US film studio behind Ben-Hur, the James Bond series and the new comedy Coffee and Cigarettes, moved a step closer yesterday after details emerged of a preliminary offer from Time Warner.
The company is in the early stages of assembling an offer in cash and shares for MGM, sources familiar with the proposal said yesterday. The deal is said to value the studio business at slightly less than the $5bn (£2.7bn) rival suitor Sony has been looking to pay.
In partnership with private equity groups Texas Pacific and Providence Equity Partners, Sony is said to have completed its due diligence on a planned offer for MGM. But with no firm offer from Sony on the table after a period of exclusive talks, MGM has been casting around for alternative suitors.
This week MGM chief executive Alex Yemenidjian told a shareholders' meeting: "As it turned out, we have more strategic alternatives available to us than we realised."
Time Warner, which has recently begun its due diligence investigations, will want to reassure investors it is not prepared to overpay in order to win any auction for MGM. The company's reputation was severely damaged four years ago when it entered into a $112bn merger with AOL after a relatively brief inspection of the internet firm's books.
The deal proved a disaster and has attracted the ongoing scrutiny of US regulator the securities and exchange commission as well as a class action lawsuit alleging shareholders had been duped. The main architects of the AOL merger have left the company.
Under the terms of the proposed deal with MGM, 87-year-old Las Vegas billionaire Kirk Kerkorian would receive Time Warner shares in return for his 74% controlling stake in the studio while MGM's minority shareholders would receive cash.
The deal would value the studio group at about $4.7bn, including almost $2bn in debt.
The offer would have to overcome anti-competition concerns raised by the linking of MGM with the Warner Bros Studio business, part of the Time Warner empire.
Other names mentioned as potential suitors include Microsoft and NBC.
According to the New York Times, NBC, which is part of General Electric, has in recent weeks signed a confidentiality agreement and been granted access to MGM's books.
A $5bn bid from Sony, which remains the most advanced prospect, could yet materialise once issues with its private equity partners are ironed out. Sony hopes to stump up $1.5bn, with its financial partners providing the balance.
MGM and Time Warner declined to comment yesterday.
