MGM Agrees to Acquire PolyGram Movie Library

Capping weeks of negotiations, Kirk Kerkorian’s Metro-Goldwyn-Mayer Inc. has agreed to acquire most of the movie library of PolyGram Filmed Entertainment from Seagram Co. for $235 million in cash.

With the addition to its existing catalog, MGM’s library of 5,200 movies will represent more than half of the Hollywood studio films produced since 1948. The PolyGram library, including “The Graduate,” “The Crying Game,” “Four Weddings and a Funeral” and “Fargo,” accounts for more than 1,300 of those titles.

MGM said the acquisition would give the studio the largest movie library in the world, but Warner Bros. disputed the point, saying it has more than 5,700 titles.

In a prepared statement, Seagram put the value of the deal at $250 million, but $15 million of that will come from the library’s cash flow before the deal closes in January. Since that money will not be coming from MGM but from an asset Seagram will own outright when its $10.4-billion purchase of PolyGram is expected to close in early December, the value of the deal is probably closer to $235 million.

After selling two-thirds of the PolyGram movie library to MGM and with hopes of unloading the rest on Britain-based Carlton Communications or some other buyer, Seagram still faces the problem of disposing of PolyGram’s remaining assets, which include a movie production entity and worldwide distribution operation. What it can’t sell off will either be absorbed by its Universal Studios or dissolved.

Seagram had intended to sell all of the PolyGram movie assets intact to defray the cost of its acquisition of parent PolyGram from Philips Electronics. But Seagram couldn’t get the price it sought.

This week, PolyGram reported that losses in its film unit had widened to $38 million in the quarter ended Sept. 30, from $22 million a year earlier. For the first nine months, the unit’s losses increased to $119 million from $80 million a year earlier.

Also of note in Thursday’s announcement was MGM’s explanation that it is acquiring the PolyGram library through its wholly owned subsidiary, Orion Pictures. That way, MGM hopes to circumvent a clause in its long-term home-video deal with Warner that calls for all new and existing MGM products to go through Warner video until at least 2003, when it starts reverting to MGM.

Presumably, MGM’s position is that the PolyGram library wouldn’t be covered under that deal since the movies would go under its Orion Home Video label.

Warner, which collects a distribution fee for the service it provides MGM under a 1990 agreement, is likely to contend that the 1,300 PolyGram titles fall under its existing deal with MGM. Warner declined comment Thursday.

An MGM official declined comment on the matter, saying only, “We’re delighted to have bragging rights to the largest film library in the world.”

Warner is already up in arms that MGM has been distributing titles from its Orion Pictures library, which it purchased last year.

The portion of the PolyGram library that MGM is buying, which does not include the ITC catalog of 10,000 hours of TV programming and 350 movies, is projected to generate annual cash flow of $20 million to $30 million.

MGM’s existing library, which consists of 4,000 titles, nets the studio about $150 million annually, which could rise to $230 million once MGM gets reversions to various titles after 2000.

In addition to increasing cash flow, Kerkorian also wants to bulk up MGM’s library to increase the value of the studio and raise his chances of making a return on his $1.4-billion investment in MGM, a company he purchased for the third time in 1996.

At $235 million, Kerkorian appears to have made a good deal for the PolyGram library, which includes 1,051 titles from the old Epic catalog, as well as films such as “Baghdad Cafe” from the Island/Atlantic library; “sex, lies and videotape” from the Virgin/Palace catalog; and films like “Dead Man Walking,” “The Usual Suspects,” “Four Weddings and a Funeral” and “Fargo” that were produced by PolyGram before March 31, 1996.

PolyGram, outbidding MGM, paid $225 million for the Epic library last December after having doled out $156 million for the ITC catalog in 1995.

Now that it has sold two-thirds of the library to MGM, Seagram is negotiating in earnest to sell off the TV-heavy ITC library elsewhere.

Seagram officials declined comment, but sources said the company is talking to two potential bidders, one of which is Carlton Communications. MGM wanted to conclude a deal by today, in time for a rights offering to shareholders. MGM said it will increase the offering to $700 million from $500 million to cover most of the acquisition cost.

Kerkorian, who owns 90% of MGM, is expected to underwrite the increased offering based on the fact that he previously agreed to cover the $500 million.

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What MGM Bought From Seagram

Metro-Goldwyn-Mayer has agreed to buy more than 1,300 films from PolyGram’s library for $235 million. The deal means MGM would own about 5,200 titles, or more than half of the studio film p1919902837