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MGM up, Vivendi falls
on deal's end
Lion pulls out of Universal bidding; Kerkorian ups stake
Shares of MGM (MGM: news, chart, profile) gapped up at the market open and stayed there all day, ending at $13.94, up $1, or 7.8 percent. Vivendi, meanwhile, (V: news, chart, profile) dropped 69 cents, or 3.7 percent, to $17.82.
MGM took itself out of the running for Vivendi Universal's U.S. entertainment assets on Tuesday, saying the $14 billion asking price was too high.
Almost immediately, MGM's largest stakeholder, Kirk Kerkorian, said he and his Tracinda Corp. planned a tender offer for 15 million more shares of MGM stock at $16 a share.
Kerkorian and Tracinda currently control 164 million MGM shares. That's roughly 67 percent of all shares outstanding. Kerkorian had sold 25 million shares of MGM stock back in January for roughly $10 a share, saying it was for tax purposes.
In a statement, Kerkorian said: "We believe that recent trading prices of MGM's common stock do not reflect MGM's full value and that the stock represents an attractive investment. This tender offer demonstrates our confidence in MGM and our commitment to the company's future."
In backing away from the bidding, Los Angeles-based MGM said it could not meet the demands of Vivendi's Paris executives, who are eyeing the unloading of its film studio, cable television units, theme parks and games division to pare debt.
"Unfortunately, meeting the seller's current price expectation would not be consistent with our valuation of the assets," Alex Yemenidjian, MGM's CEO, said in a separate statement. "MGM is a disciplined buyer, and we will not pursue strategic opportunities, however attractive, unless we can do so on a basis that makes sense for our shareholders."
A spokesman for Vivendi had no comment.
MGM was one of five bidders seeking some or all the Universal Studios in North Hollywood, Calif., and related properties. It offered $11.5 billion in cash for the properties, and was said to be the highest bidder. Vivendi, however, indicated that MGM was not the highest bidder.
Others still in the running include Liberty Media (L: news, chart, profile), General Electric's (GE: news, chart, profile) NBC Network, a consortium led by Edgar Bronfman and Viacom (VIA: news, chart, profile) (VIA.B: news, chart, profile).
An investor in MarketWatch.com, publisher of this report, Viacom seeks only Vivendi's cable television assets. NBC is looking for a partnership. Liberty and Bronfman are the only bidders willing to buy all the assets.
There may be other players, such as Comcast Corp. (CMCSK: news, chart, profile), which reportedly is looking over Vivendi's financial information. And Barry Diller, who headed Vivendi's studios until earlier this year, could be part of a deal in which he would take over some of the operations once Liberty's John Malone completes a deal.
As for MGM, analysts are mixed on what this means for the studio and its dream of becoming a vertically integrated media company. MGM recently sold its 20 percent stake in Rainbow Networks at a discount, presumably to help pay for a Vivendi bid.
Some say this was MGM's last best chance, although sources close to the company say that's not the case.
"I struggle to think about what other cable networks are available that would be a good fit for MGM," said Michael Gallant, analyst for CIBC WorldMarkets.
But Robert Routh of Natexis Bleichroeder said MGM is now in a strong position to make other acquisitions, which he says are still out there.
"The company is still sitting on $1 billion in cash," Routh said. "I think there's more to come. The question is, 'What is it?'"
As for Vivendi, Routh wondered whether the other players would remain in the hunt.
Vivendi has said it may never sell the properties, and could either spin them off via an initial public offering, or simply hang on to the assets. Bidders also may be growing impatient with Vivendi's drawn-out tactics. The company has said it may not make a decision on the properties until September.
MGM's withdrawal may give some of the other bidders reason to pause, Routh said -- particularly if MGM had the highest bid.
"You're dealing with people who are in the industry, who ought to know what these properties are worth," he said.