Sony Needs More Time For MGM Deal

Their 15-day exclusive negotiating period officially passed yesterday (May 27), but Sony isn't necessarily out of the MGM lion's den yet. Sources said Sony has asked for an extension of their arrangem

Their 15-day exclusive negotiating period officially passed yesterday (May 27), but Sony isn't necessarily out of the MGM lion's den yet. Sources said Sony has asked for an extension of their arrangement while it continues to hash out details of a possible MGM takeover with its investment partners Texas Pacific Group and Providence Equity Partners.

At press time, it was unclear whether MGM would grant the full two-week extension that Sony is said to have asked for. But those familiar with the deal said it is likely that the two will continue talking exclusively at least through next week.

Analysts said the development wasn't surprising given the scope of the proposed acquisition. A sale price of $5 billion has been widely discussed since Sony's interest was first disclosed in buying MGM and its library of 4,000-plus titles.

"A 15-day negotiating window is really not a lot of time to use the appropriate diligence in terms of acquiring a library as large as this," said David Miller of Sanders Morris Harris. Miller said four to six weeks was more typical of the time usually taken to work out such deals in the final stages.

Price does not appear to be an issue as a $5 billion price tag is said to have been agreed on by both sides early on. At issue now, according to sources, is the exact size of each partner's investment along with the crafting of an exit strategy for Sony's two private equity firm partners.

Regardless of the exact structure of the deal, it is likely that MGM would remain a stand-alone company under Sony's control. A source familiar with the talks confirmed that Sony would like to keep MGM a separate production entity, in part to allow Sony to keep the debt associated with the acquisition off its own balance sheet. Sony is in the midst of a restructuring aimed at bolstering its consumer electronics business and is keenly conscious of maintaining its debt rating.

If a deal is sealed, Sony will end up controlling more than 40% of all the films ever made in Hollywood, according to published estimates. This dominant position would not only give Sony an attractive cash machine but could also be used to further its objectives in creating synergies among its other units.
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