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Time loses studio deal to Sony Co

A consortium led by the Sony Corp of America reached a tentative agreement Monday to buy Metro-Goldwyn-Mayer, the Hollywood studio famous for the James Bond and the Pink Panther movies, for about US$4.8 billion in cash, snatching it from the hands of Time Warner at the 11th hour.

The deal, which ends an auction that was filled with behind-the-scenes machinations for months, included one last surprise twist: Comcast, the cable giant, joined Sony's consortium as a strategic partner and a possible investor.

The Sony-led group, which includes the buyout firms Providence Equity Partners, Texas Pacific Group and DLJ Merchant Banking Partners, struck the deal with MGM just 24 hours before the studio had scheduled a board meeting to approve a deal with Time Warner.

If the transaction is completed, it would be the third time that Kirk Kerkorian, MGM's controlling shareholder, would have sold the company since he first acquired shares in it in 1969.

The deal caps a come from behind story for Sony, which originally bid for MGM in April but was unable to complete the deal after becoming bogged down in negotiations with its own backers, opening the field to a rival offer from Time Warner.

With the last-minute addition of Comcast to the Sony-led consortium -- a pact that was negotiated over Labor Day weekend in Martha's Vineyard, where executives from Sony and the other investors converged on the summer house of Brian Roberts, Comcast's chairman -- the group decided to raise its bid to US$12 a share from US$11.23 and also sweeten its offer further by offering a nonrefundable US$150 million deposit. Time Warner had offered US$11 a share and had guaranteed the deal's completion.

The Sony-led group could justify the higher bid because part of its deal with Comcast calls for the creation of several new premium cable channels that will broadcast both Sony and MGM movies, adding an additional revenue stream for the company.

For Comcast, its participation came with some reluctance. Having lost its hostile bid for the Walt Disney Co and been derided by investors for even making the offer, Roberts was wary about being part of another potentially unsuccessful bid for a content provider, executives close to the negotiations said.

While MGM may be famous for making films like The Wizard of Oz, under the plan being developed by the Sony-led group, most of the movie studio operation would be shut down. Sony would license and distribute MGM's most valuable asset, its library of more than 4,000 films. Only the studio's best-known film series, like James Bond, would continue to be produced under the MGM brand through Sony.

The arrangement with the consortium was originally conceived and structured by Sony, which already owns the Columbia and TriStar studios, so that it could gain access to MGM's library without having to pay the entire bill and take on additional debt, a requirement of its Japanese parent. MGM's library of films will not only give Sony additional revenue from next-generation DVDs, it will give it added weight in the looming fight over technology standards for those DVDs.
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