So my sources, BusinessWeek‘s sources, and now TheDeal.com’s sources all report that MGM is for sale despite the studio’s denials. Last night, the well-known financial website (whose articles require a subscription) noted that MGM doesn’t need Goldman Sachs because it already has relationships in place to, quoting from a statement it released Monday, “explore enhancements to MGM’s long-term capital structure.” The website cited in particular existing MGM arrangements with J.P. Morgan Chase & Co. and Royal Bank of Scotland Group plc. “Veteran film financier John Miller of J.P. Morgan, which with Credit Suisse Group committed $4.25 billion in debt financing for MGM’s acquisition by a consortium in April 2005, was described by one source as the go-to guy should MGM wish ‘to rework the credit facility.’ RBS, meanwhile, has been trying to raise a $500 million credit line for the studio for six months.”
So, asked TheDeal.com, what’s left for Goldman to do? “Something it does really well, sources speculated, which is investigate M&A opportunities.”
Sources told TheDeal.com that Goldman Sachs may help MGM take on additional equity partners as well as holding a sale of the company.”
TheDeal.com adds more detail to what I’ve noted previously — Goldman Sachs’ long history with selling MGM. Kirk Kerkorian retained the investment bank in the spring of 2004 to co-run its auction of the studio with Latham & Watkins LLP. In addition, Goldman provided the fairness opinion advising MGM’s public shareholders to accept the $12 per share offer that allowed it to go private and led to the studio’s $5 billion sale to a consortium consisting of Sony Corp. and Comcast Corp. as strategic investors, as well as Providence Equity Partners Inc., TPG Capital, DLJ Merchant Banking Partners and Quadrangle Group LLC as financial sponsors.
The Deal.com also counted three shifts in the business model employed by MGM: monetizing its 4,000-title library, offering itself as a distribution platform to others, and attempting to return to major-studio status with a full production slate. “That no model has yet panned out explains why MGM’s $3.7 billion in debt is trading around 75 cents on the dollar in an increasingly tough credit environment. ”
As for MGM’s denial that it’s on the block, TheDeal.com notes that “MGM’s financial sponsors have little risk in testing the market. Unlike their strategic partners, who have already written down their investments in the Lion, the consortium’s
private equity members can defer mark-to-market revisions until they exit.”
The financial site also predicted that UA’s Merrill Lynch financing could disappear, too, after UA’s development and production delays under the administration of Paula Wagner and Tom Cruise. “Sources also took issue with MGM’s contention that ‘existing financing arrangements are sufficient.’ Even the much-discussed $500 million facility for the studio’s United Artists Corp. division (secured last August from Merrill Lynch & Co.) may not last its anticipated production run of 15 to 18 movies over five years. Because it’s really a revolving facility, one source explained, UA films
must meet certain hurdles to avoid ‘defaults.’ But given UA’s performance with Lions for Lambs and the budget overruns already recorded for Valkyrie, a year-end release, it’s conceivable the facility won’t cover more than a total of four films.”
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