MGM-UA Entertainment Co. and Turner Broadcasting System said today that their $1.45 billion merger deal is in trouble and that efforts were under way to try to salvage it.
The joint statement by the Culver City, Calif., movie company and the Atlanta broadcaster 80 percent owned by entrepreneur Ted Turner was the first official comment since it was reported Saturday that complications apparently had developed in the deal.
In the terse announcement put out over the name of MGM-UA Chairman Frank Rothman, the parties said they "are in discussions with a view to a possible restructuring of the agreement under which Turner Broadcasting is to acquire MGM-UA." The agreement includes a simultaneous sale of MGM's United Artists subsidiary to Kirk Kerkorian, who controls MGM-UA with 50 percent of its stock.
Further, the release said: "The companies said talks are taking place because Turner Broadcasting advised MGM-UA that it encountered 'certain difficulties' in completing the pending acquisition under their current agreement."
The latter wording appeared to indicate that, as previously speculated, the New York investment firm of Drexel Burnham Lambert was having difficulty arranging the financing that it had told Turner it was "confident" it could accomplish -- primarily by selling high-risk, high-yield "junk" bonds.
Kerkorian was a client of Drexel Burnham's before the firm was hired by Turner Broadcasting to put together financing for its entry into Hollywood.
Neither Rothman nor other MGM-UA officials nor Turner Broadcasting spokesmen returned inquiries today about their joint announcement. Officials of Drexel Burnham's West Coast offices in Beverly Hills also could not be reached for comment on reports that they wanted to pull out of the MGM-UA acquisition.
There was little change in the stock price of MGM-UA (which closed today up 12.5 cents at $21.125) and none for Turner Broadcasting (which remained at $15). The parties' announcement was made after the markets closed.
Wall Street has been rife with rumors for weeks that Drexel Burnham was having trouble arranging the mountain of debt contemplated to close the MGM-UA transaction.
In a series of complications, negotiations fell through between Turner and prospective buyers of Turner Broadcasting or MGM assets. This left the future of MGM as a studio up in the air, because of Turner's figures showing a huge shortfall in cash to run it after the projected merger takes place.
The Turner-MGM deal was renegotiated once -- in October -- to reduce the Turner offer to $25 cash and a share of new Turner Broadcasting preferred stock for each MGM share from the $29 cash offer last August.
One critic said that Turner made a mistake in not making the deal contingent upon the successful arrangement of the financing, calling it "unheard of."
Turner's previous filings with the Securities and Exchange Commission disclose few "outs" for either party.
Basically, Turner's obligations are subject to accuracy of "certain" representations and warranties by MGM-UA and the performance of all required acts by MGM-UA.
However, the document says, if the deal is not closed by Feb. 28 either party may terminate the merger.
It is widely believed that MGM-UA would have legal recourse if Turner does back out. Among other things, the Kerkorian forces have set up and staffed the new, independent United Artists that is to be spun off in the deal.
Ironically, the contract provides that Kerkorian's new UA will get all proceeds from MGM-UA's big boxoffice hit, "Rocky IV," under a division of MGM and UA assets.