Seven up on Metromedia buy
Stokes, whose company chipped in $250 million in July to buy MGM in tandem with Kirk Kerkorian's Tracinda Corp., said there would be an IPO for MGM on the New York Stock Exchange in mid-1998. He indicated Seven would retain its stake and that about $300 million would be raised by Tracinda selling down its shares.
Originally, Stokes said he planned a stock offering within three to five years. In the wake of the Metromedia deal, Stokes said Seven would emerge from the float with an economic interest of about one-third, but would keep 50% of the voting rights of MGM and would continue to have three seats on the seven-member board, which is chaired by Frank Mancuso.
MGM is paying $573 million for Metromedia's production and distribution assets, including $360 million in cash. To fund that, Tracinda is subscribing for $321 million in common stock in MGM, and Seven will subscribe for $39 million in MGM stock; the balance comprises assumption of debt and current liabilities.
Stokes said Seven will take up its option to acquire $100 million in preferred stock from Tracinda in July. He told Australian media and analysts the Metromedia acquisition would generate annual cash flow of more than $50 million.
He predicted MGM would throw off earnings of about $150 million next year and $200 million the following year. Adding in Metromedia's assets, he said he believes the value of the studio has doubled since last year, estimating the company's current worth at $2.5 billion to $3 billion.
Seeking to dispel fears that MGM does not have sufficient working capital to fund its production slate, Stokes said the major did not need additional funds to meet its commitments to make eight films this year and nine in 1998.
Australian investors immediately welcomed the Metromedia deal and Stokes' comments, pushing Seven's share price Tuesday to a record A$4.80 ($3.74), up 19¢.
A Seven source said MGM was now focusing on exploiting its enlarged library and on producing movies that are story-driven, rather than mega-expensive, special-effects laden "tentpoles."
