Fresh off its deal to fund DreamWorks SKG, Mumbai-based Reliance ADA Group has restarted talks over a potential buyout or equity investment in Metro-Goldwyn-Mayer, The Post has learned.
Several sources involved in or close to the situation described the discussions as “exploratory,” with Reliance’s bankers at UBS trying to come up with a deal structure “that makes the numbers work.”
These sources also said that News Corp., former Yahoo! and Warner Bros. CEO Terry Semel and “three or four others” have also expressed interest in MGM to Goldman Sachs, which studio boss Harry Sloan retained in late August to look at strategic alternatives for the company. (News Corp. owns The Post.)
Reliance, through its Reliance Big Entertainment unit, had previously kicked the tires on MGM, but those conversations were put on hold while it finalized its deal with the Steven Spielberg-led DreamWorks.
And despite closing all but the $700 million debt component of the $1.2 billion DreamWorks transaction, Reliance is understood to still be keenly interested in MGM.
“Reliance’s ambitions in Hollywood extend far beyond DreamWorks,” said one source.
Reps for all the companies involved either declined comment or did not return calls for comment.
Reliance faces obstacles if it buys all of MGM or simply makes an equity investment.
An outright purchase, for instance, would trigger change-of-control provisions in the studio’s credit lines that the lending banks could use to pull the funding.
The studio has revolving credit facilities totaling $450 million from JPMorgan Chase and $500 million from Merrill Lynch, the latter of which was obtained through MGM’s Tom Cruise-led United Artists unit.
“Reliance would want to bring that credit with them to help with leverage and in determining how much money to put in,” said a source close to MGM.
Meanwhile, taking out an equity stake – either by buying out current investors or injecting fresh capital – could make for a cleaner transaction, but would also be costly.
According to sources, MGM’s owners won’t sell out or bring in additional equity at anything less than the $5 billion total they paid for the studio in 2004. MGM’s equity partners include Sony, Comcast, Providence Equity Partners and Texas Pacific Group.
Indeed, TPG in a June 30 investor letter said its MGM stake was worth what it was in 2004.
Holding firm to such a valuation isn’t helping MGM, whose effort to secure its own film financing through Royal Bank of Scotland is all but dead given the current Wall Street meltdown. An MGM spokesman said its film fund continues to move forward.
MGM needs money and Reliance has ample cash, but sources said its bankers haven’t yet found a model to justify a $5 billion valuation for the studio.
Given the hurdles, sources said there would be a lot of talk around MGM, but little action.
“I’d be surprised if anything happened before next fall,” said a third source close to the situation. “Instead, I think Harry [Sloan] will continue repositioning the company as a movie producer, with an eye towards a liquidity event when it can negotiate from a position of strength.”