Atlanta broadcaster Ted Turner and MGM/UA Entertainment Co. said yesterday that Turner has lowered the cash in his takeover bid by hundreds of millions of dollars -- again.
Under terms of their second revised merger agreement, Turner will pay $20 a share in cash and one share of a new issue of preferred stock for each share of MGM/UA. Turner wants to acquire MGM because he believes its 2,200-film library will help hold down the cost of obtaining movies for his cable channel, the WTBS-Superstation.
The revised billion-dollar deal announced yesterday has about $470 million less cash than Turner agreed to pay on Aug. 5 when he offered $29 a share in cash for each share of MGM. It has about $260 million less cash than Turner agreed to pay in his first revised deal on Oct. 2, when he offered $25 a share in cash and one share of preferred stock.
MGM is the third public company this week to accept a lower offer from a bidder that initially had signed an agreement to pay a higher price. The board of directors of R. H. Macy & Co. yesterday approved a revised management buyout bid of $68 a share in cash, $2 a share less than the original agreement of $70 a share. Earlier this week, Baltimore's Easco Corp. agreed to a revised buyout bid of $17.50, $3 a share less than Washington's Rales brothers initially had agreed to pay.
Investment bankers have said bidders are lowering their offers because of growing difficulty in financing takeovers with high-yield securities known as "junk bonds." In the MGM deal, investment bankers and analysts have been saying since August that Turner initially agreed to pay an unrealistically high price, only days after ending his unsuccessful hostile takeover bid for CBS Inc.
Some investment bankers contend that another reason for the unusual series of lowered bids is a takeover strategy in which a bidder agrees in writing to pay a high price, figuring the bid can be lowered later after he has examined the company's confidential financial information. Other investment bankers disagree, saying prices have been lowered legitimately after bidders discovered unexpected problems in deals.
Drexel Burnham Lambert Inc., the leading Wall Street purveyor of the "below-investment-grade" securities known as junk bonds, said yesterday it is "highly confident" of its ability to arrange financing for Turner, and said the junk-bond market remains strong and viable. Drexel had said it was "highly confident" of its ability to arrange financing for the previous Turner offers that were lowered.
Sources said Turner wants to keep MGM's film library and sell the company's valuable real estate and film studio to raise cash. He already has agreed to sell United Artists' (UA's) assets to financier Kirk Kerkorian for $470 million. Kerkorian is MGM/UA's largest stockholder, with 50.1 percent.
Turner is still considering selling a stake in his Cable News Network, sources said. He has unsuccessfully been trying to reach agreements to sell MGM assets and a stake in CNN to major media companies for several months. Several media company executives have said they are not interested in buying a stake in CNN unless they, and not Turner, would have control over key decisions in the future.
Turner said yesterday that he expects to complete the acquisition of MGM/UA by early March. He said the preferred stock he is offering MGM/UA shareholders will have a stated value of $10.33 a share, with dividends beginning the second year at a rate of 14 percent.
Sources said the stock is designed to be worth about $9 a share but could trade for less. Preferred dividends will not be paid in cash for the first several years, but instead will be paid in shares of Turner Broadcasting common stock. MGM/UA stock, which had dropped recently in anticipation of a lowered offer from Turner, closed yesterday at $22.67, up $2.67.
MGM/UA had a net loss of $115.8 million (minus $2.33 a share) on revenue of $655.2 million in its 1985 fiscal year, versus net income of $34.7 million (69 cents a share) on revenue of $706.9 million the prior year. In its first fiscal quarter of 1986, MGM/UA had a net loss of $26.9 million (minus 54 cents a share) on revenue of $163.3 million versus net income of $1.7 million (3 cents a share) on revenue of $170.9 million last year. "First quarter results were adversely affected by expenses connected with the proposed merger with Turner," MGM/UA Chairman Frank Rothman said.