Merrill Lynch is examining its contract with United Artists as the beleaguered bank looks to revise the deal on more favorable terms, The Post has learned.
Merrill’s goal is to see if studio parent Metro-Goldwyn-Mayer violated any terms by axing Paula Wagner – superstar Tom Cruises’ movie partner – as UA’s CEO.
Meanwhile, as a safeguard against Merrill’s maneuvering, MGM has retained Goldman Sachs as a strategic adviser to raise equity for film financing as well as other alternatives, including a potential sale of the famed studio, according to three people involved in or close to the situation.
Since Tom Cruise still is technically tied to UA, MGM boss Harry Sloan likely hasn’t defaulted on any of the terms of the $500 million credit facility that Merrill extended to UA.
Reps for Merrill and Goldman did not return calls or could not be reached, while an MGM spokesman said the UA fund is “completely safe.” For now, that is.
Sources said Merrill is looking for any event that might trigger a default on the loan and open the door to renegotiations.
Merrill’s moves mean that Sloan’s hope to put the financing under the control of MGM production chief Mary Parent isn’t likely to happen.
“Sloan isn’t going to be able to use United Artists funds for non-United Artists movies” without a significant altering of the original agreement, said one person involved in the process. According to this person, the terms of the original financing agreement were so favorable to UA that Merrill and its syndicate of lenders would love to get out of it entirely. Short of that, the lenders are seeking any concessions they can get, the person said.
Indeed, Merrill has had bad luck in the movie business, having recently disbanded its film-financing unit because of the poor returns generated from deals with Summit Entertainment, Paramount Pictures and others.
By retaining Goldman, MGM hopes to finally raise its own money so it doesn’t have to rely on convincing Merrill to give it access to UA’s cash. But that may be easier said than done in the current tight credit climate. MGM has tried unsuccessfully to raise equity several times in the past year, though people close to the studio insist it is weeks away from securing its own film-financing deal.
Perhaps that’s why sources said Goldman also has put together a book that values MGM at $5.2 billion in a sale. A group comprised of Providence Equity Partners, Texas Pacific Group, DLJ Merchant Banking Partners, Sony and Comcast acquired MGM in 2004 for $5 billion.
Goldman’s asking price was bolstered by a recent review of MGM’s film library by BMO Capital Markets that valued it at about $6 billion, based on roughly $550 million in annual cash flow. (The library is valued higher than the studio itself because it doesn’t account for such expenses as overhead and production risk.)
“It’s no secret that if there was a way for MGM’s owners to cash out at the right number they would,” said one person close to the situation.
But sources said a sale is a long shot, since no buyer is interested in meeting MGM’s asking price and its owners aren’t yet desperate enough to take a haircut on their investment.