Metromedia layoffs likely
If a pact is struck, distribution and marketing for Orion Pictures and Goldwyn Entertainment, both currently under the MEG umbrella, would become redundant under the MGM banner.
"I don't know if I have a job or not," one Orion insider said Tuesday, the last day of the initial due diligence process, a first stage before further examination of the books. Both MGM and MEG declined to comment.
Key execs from MGM and MEG met Monday in the law offices of O'Melveny & Myers, among them Sylvia Kessel, a top MEG exec, as well as MGM's Robert Pisano and Tracinda's Jerry York, who is MGM half-owner Kirk Kerkorian's right-hand man.
Meanwhile, stock in Metromedia Intl. Group, parent company of MEG, jumped 87¢ to $8.75 Tuesday as investors bought on expectations of a pending deal with MGM. But even at these levels, the stock is still way down from its high of $17.37 a year ago, when it had risen in the wake of the Samuel Goldwyn Co. and Motion Picture Corp. of America acquisitions.
The key problem with the stock, Wall Streeters say, is that investors either want an entertainment company or a telecommunications company ---not something like Metromedia, which has both. "The stock has really suffered by the hybrid nature of the company," one investment banker said.
John Kluge's No. 2 at Metromedia, Stuart Subotnick, is leading the negotiations for Metromedia, with Kessel on the front lines in Hollywood. Subotnick has told bidders the entertainment group alone is worth $10 a share --- or $650 million --- which one person involved in negotiations said is unrealistic.
MGM is said to be offering somewhere around $550 million, including assumption of debt. That is likely to be the best price Kluge could hope for: Investment bankers say he has spent weeks talking to potential bidders, who have ranged from Polygram to Morgan Creek, but no one is willing to come anywhere close to his price.
One problem has been the Orion and Goldwyn libraries, which, insiders said, are hobbled by long-term sales commitments overseas. The Goldwyn library, in particular, has titles from the Rank Films catalog that are missing elements, such as foreign-language tracks, which would make them salable in certain territories. The same is true of a number of Orion's older pictures, reducing both libraries' value.
Another problem has been that Kluge wanted someone to buy the entertainment group as a going concern --- which implies a value for both the library and the production under way. "They have figured out they're not going to do it, so now I think that the price relates much more to the library value," one banker said.
Still another hurdle for prospective buyers is the overhead for the combined Orion/Goldwyn production and distribution operation, which inside sources place at $30 million to $35 million.
