Sony Closes In on $5 Billion MGM Deal

Updated from 5:20 p.m.

Sony (SNE) agreed to acquire MGM (MGM) Monday in a deal valued at some $5 billion, MGM confirmed in a late press release.

The deal comes at the end of a tumultuous day in a long-running auction for the storied movie house. Earlier Monday, Time Warner (TWX) withdrew its bid for MGM, the mini-studio with a coveted film library that includes the Rocky, James Bond and Pink Panther series of films.

MGM said Monday that a group led by Sony and including cable giant Comcast (CMCSA) would buy MGM for $12 a share. The group, which also includes lead private equity investor Providence Equity Partners, Texas Pacific Group and an investment arm of Credit Suisse First Boston, proposed exclusive talks to finalize the agreement, according to Reuters.

MGM said it received a $150 million security deposit on Monday and that it expected management would recommend the deal to its board by Sept. 27.

Reuters had reported Monday morning that a Sony-led investment group had raised its bid for MGM to $5 billion, including the assumption of $2 billion in debt. An unnamed source "close to the matter," Reuters reported, said the Sony group has locked in financing for a $12-per-share deal for MGM.

Sony's apparent victory came as Time Warner decided to regroup.

"As we pledged to our shareholders, we approach every potential acquisition with strict financial discipline," Time Warner CEO Dick Parsons said in a statement Monday. "Unfortunately, Time Warner could not reach agreement with MGM at a price that would have represented a prudent use of our growing financial capacity."

Referring to the MGM deal, Parsons said Monday, "We are confident that there are other capital allocation choices that will enable us to continue to build shareholder value."

Certainly, MGM hasn't been the only possible major acquisition on Time Warner's plate in recent months. Time Warner is seen as one of the likeliest buyers for at least part of Adelphia Communications, the bankrupt cable operator which is slated to move forward on a possible sale of its operations this month.

Time Warner, given its shareholder-value-crushing acquisition of America Online in 2001, has good reason to tread cautiously about a major acquisition.

But despite Time Warner's past missteps, outsiders had given an MGM acquisition a greater chance of success: Rather than getting into a new line of business with MGM, Time Warner, in acquiring the MGM film library, would be able to maximize the value of those movies by exploiting them in its established distribution systems.

For its part, MGM, controlled by restless investor Kirk Kerkorian, has been on the block for months. Over the years, Kerkorian has been a serial buyer and seller of the storied studio.

Were Time Warner to make up with MGM and end up purchasing the company, investors might be forgiven for having a sense of deja vu. Back in the 1980s, Kerkorian sold MGM, then combined with another studio, United Artists, to Ted Turner, who diligently mined the MGM library for cable channel programming. Turner sold United Artists and the MGM trademark back to Kerkorian; Turner's cable properties are now part of the Time Warner empire.

Like Time Warner, Sony -- which has scored recent successes with its Spider-Man movies -- could have a field day with MGM's library, distributing movies via DVD and other media.

Katsumi Ihara, chief financial officer of Sony, has said the company needs to buy MGM to expand its own film unit. Earlier this month, Bloomberg reported Ihara saying, "The deal is necessary for our pictures business to grow in the longer term."

The latest back-and-forth struggle for MGM -- chronicled by numerous stories leaked to the press -- has gone on long enough to achieve soap operatic proportions. Following a report last week that Sony was hoping to top then-apparent-auction-winner Time Warner, the Defamer Weblog reported, "Will someone please, please go ahead and finally buy MGM and put us all out of our misery?"

On Monday, Time Warner fell 6 cents to $16.45, MGM rose 44 cents to $11.55, and Sony added 53 cents to $35.82.

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