Time Warner, MGM Hold Early Merger Talks

By Derek Caney and Bob Tourtellotte
NEW YORK/LOS ANGELES (Reuters)

Time Warner Inc., has held preliminary talks with movie studio Metro-Goldwyn-Mayer Inc. about a possible merger, a source familiar with the matter said on Thursday.

If the talks succeed, such a combination would pair the world's largest media company, New York-based Time Warner, with the Hollywood studio that owns one of the most valuable film libraries.

But the source cautioned that the talks were in "very early stages. The companies are not believed to have discussed price, structure or any other details." The two companies may continue talks after the holidays, the source said.

Spokespeople for both Time Warner and MGM declined to comment. Shares of Los Angeles-based MGM rose 4.9 percent to $17.05 on the New York Stock Exchange, while Time Warner stock was up 2.1 percent at $17.90, also on the NYSE.

Wall Streeters were skeptical owing to Time Warner's strategy of selling assets to pay debt, although in recent weeks it has signaled those days may be behind it.

"I don't consider it a viable or realistic strategy because Time Warner is in the process of cutting debt, not increasing," said Doug Kass, manager of hedge funds for Seabreeze Partners and Kass Partners. "They'd buy back stock before doing anything like this."

Moreover, MGM has often been reported to be talking to various parties about being either a seller or a buyer in business transactions.

In January 2002, the Los Angeles Times reported that it had hired Goldman Sachs to look for buyers who might pay $7 billion for the company, but no deal ever materialized.

Time Warner last eyed MGM in 2002, but the owner of the Warner Bros. film studio was then struggling with heavy debt, according to a story in show business newspaper Daily Variety.

But thanks to recent major asset sales, such as the pending $2.6 billion sale of its music business, Time Warner's balance sheet is looking healthier.

Santa Monica, California-based MGM had mixed success at box offices in 2002, but has seen greater success this year with movies like "Jeepers Creepers 2" and "Legally Blonde: Red, White and Blonde."

The studio's prime asset is its film library with 4,000-plus titles including "The Pink Panther" movies, "Rocky" and the highly lucrative James Bond films.

According to Daily Variety, bankers value the library alone at about $4.4 billion. (Additional reporting by Kenneth Li)

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18th December, 2003