Plan to Split MGM Pictures in 2 Falls Through; Future of Troubled Firm Clouded

Just two weeks after it was announced, investor Kirk Kerkorian’s plan to spin off 25% of Metro-Goldwyn-Mayer Pictures to industrialist Burt Sugarman and producers Jon Peters and Peter Guber has fallen apart.

The announcement adds to the turmoil already plaguing MGM’s parent company, MGM/UA Communications. Last week, MGM/UA laid off about 100 of its 950 employees, according to company officials. On Monday, the Beverly Hills company canceled contracts with several producers in an apparent effort to reduce overhead costs.

Meanwhile, rumors persist about the future of MGM Chairman Alan Ladd Jr. It was widely believed in the industry that Ladd would resign if the deal went through. Ladd did not return repeated phone calls to his office on Thursday. Lee Rich, former chief executive of MGM/UA, announced his own resignation last week.

Talking to Others

Stephen D. Silbert, the Kerkorian intimate who immediately replaced Rich, said talks about the proposed spinoff of MGM broke down after the two sides failed to reach agreement on final details. Silbert made it clear that MGM/UA is seeking other buyers.

“We are actively exploring additional possibilities with others,” Silbert said in a telephone interview Thursday. Though he declined to name any potential buyers, speculation in the past has centered on producer Jerry Weintraub and oilman Marvin Davis, among others.

Under the proposal scuttled Thursday, Kerkorian--who currently owns 82% of MGM/UA--would have retained a 57% interest in MGM, while Sugarman’s Barris Industries would have purchased 25% of the studio’s stock for about $100 million. Guber, as chief executive, and Peters, as president, would have been responsible for MGM’s day-to-day operations.

Neither Silbert nor representatives of the Sugarman-Guber-Peters team would provide details on why the deal fell through.

But since the proposal was announced July 11, industry insiders have raised questions about the price the troika originally had agreed to pay for a studio with few assets and no production facilities. Sources close to the deal said that after examining MGM’s finances, the Sugarman team questioned the studio’s capacity to regain its prominence as a major film studio.

Within the last three years, MGM sold off its 3,000-film library to Turner Broadcasting and its historic Culver City studio lot to Lorimar Telepictures. By contrast, UA still owns a film library with 950 titles, including the “James Bond” and “Rocky” series.

Distribution Operations

“Maybe Sugarman and Guber and Peters started wondering what they were buying for $100 million,” said Jeffrey Logsdon, an entertainment analyst for the investment firm Crowell, Weedon & Co. in Los Angeles.

MGM’s assets include 50% of the distribution company it owns jointly with UA, a one-sixth interest in the foreign distributor United International Pictures and such TV programs as “thirtysomething.”

The studio also owns the films it has produced in the past two years, including such hits as “Baby Boom” and the Oscar-winning “Moonstruck.” This year, a total of 25 feature films, with mixed box office success, will be distributed through MGM and UA, which the company operates as two separate studios.

MGM’s most valuable asset, many industry insiders argue, is its venerable name and Leo the Lion logo. But others question their value in an age when few moviegoers know which studio produced their favorite films.

“I don’t know anyone who goes to see movies because they were made by MGM,” Logsdon said. “Those days are long gone.”

Despite widespread speculation that the planned reorganization was behind recent cost-cutting moves--including the layoffs and cancellations of producers’ contracts--Silbert blamed those decisions on the 21-week-old writers strike.

“Film production everywhere is affected because of the strike,” he said. “That’s inevitable.”

Among the producers whose contracts were canceled was Turman/Foster, run by Lawrence Turman and David Foster, whose credits include the current film “Short Circuit 2.” Turman said he and several other producers received termination letters on Monday from MGM and UA.

Under these types of production contracts, the studio pays for a producer’s office and staff. In return, the studio retains the first right of refusal on each of the producer’s film projects.

“Life goes on,” Turman said of the cancellation. “We’re already in business with a number of other studios.”