Warner, Fox Set Sights on Buying MGM

The usual suspects are emerging in the efforts to acquire MGM, which is all but buried under $3.7 billion in debt. How much movie money is that? Well, let's assume MGM released Transformers, Harry Potter, and Ice Age 3, the year's top three movies in total ticket sales. The studio would still need $700 million just to keep the lights on, even if those movies were 100% profit. Variety says that more solvent studios, like the vertically integrated Time- Warner and News Corp. (Fox) are seriously appraising MGM, but have not yet carefully investigated the studio's finances, which should be quite a mess. Sony may also be interested is taking over MGM, but appears to be waiting to see what the offers are. Another player in all of this is Qualia Capital LLC, a media and entertainment investment company. The good news for potential buyers is that no matter what, they won't inherit this debt, as the creditors holding the cards in all of this realize that their cards aren't worth a hell of a lot. The most recent estimate for what MGM and its huge catalog were worth came in slightly below $2 billion. So if Fox can get a deal like that, expect Rupert Murdoch to pounce if he's really interested and has an opening. That's less than half of what he spent for The Wall Street Journal in 2007, and roughly half what Disney spent on Marvel this summer. Interested parties will get opportunities to look at the books, and it's possible that once the bidding starts, the price may go up, which would please the creditors. Or it could be that the potential bidders take a look at an MGM that has very little cooking outside of The Hobbit and James Bond and feels that it's not worth paying roughly $1 billion just for a bunch of old movies in the vaults. If that becomes the conventional wisdom, then Qualia (or perhaps another private firm) could emerge as the most likely candidate, just to get in the movie business. We probably won't know more for another couple months, because MGM has a forebearance on its loan until January 31st.

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