The Turner Broadcasting System said yesterday that it had agreed to sell a number of assets of the MGM Entertainment Company in two separate transactions. The sales will raise $490 million for Turner.
Turner Broadcasting will sell MGM's 44-acre real estate holding, which includes 24 sound stages as well as MGM's Metrocolor Film Laboratory, to Lorimar-Telepictures Inc. for $190 million.
It will also sell a group of holdings to the United Artists Corporation for $300 million. These include MGM Entertainment's film and television production, its home video company, its half-interest in the MGM/UA distribution company and the MGM logotype. United Artists said it would pay cash; Lorimar-Telepictures said it would determine its method of payment.
Turner Needs Cash
The sale had been expected for some time. Soon after Ted Turner agreed to acquire MGM from Kirk Kerkorian, the West Coast financier, it became evident that in order to pay off the nearly $2 billion in debt he had assumed to buy the company, he would have to sell assets.
The sale appears to take the immediate pressure off Mr. Turner. But over the long term the success of the acquisition will depend on a number of factors, including the performance of WTBS-TV, the Atlanta-based superstation for which Mr. Turner acquired the films, as well as his Cable News Network.
Mr. Turner paid about $1.2 billion for MGM Entertainment and assumed an additional $500 million in debt. At the time of the deal, Drexel Burnham Lambert, the investment bankers, arranged the financing through the use of ''junk,'' or high-yield, bonds. In September $600 million of those bonds must be retired, or interest rates on them rise. That put pressure on Mr. Turner to sell assets quickly. This $490 million sale, together with the $200 million in overfunding that Drexel arranged when it structured the initial deal, gives Mr. Turner sufficient resources to pay off the $600 million.
A source close to Drexel noted that after these asset sales, Mr. Turner will have paid about $1.2 billion for the property he sought in the MGM purchase, the studio's film library. The library generates roughly $100 million in cash flow, meaning Mr. Turner is paying about 12 times cash flow for the library.
But some analysts said the price might prove higher than that, because there is no guarantee the library can continue to generate such strong cash flows in the future, particularly since MGM is not adding new titles.
The sale of assets to Lorimar-Telepictures came as no surprise to the industry. Lorimar and Telepictures are companies that merged earlier this year, and are aggressively expanding television and film production.
They already have leased 6 out of the 24 production stages at MGM as well as stages elsewhere. The acquisition of the MGM stages guarantees them production space.
Merv Adelson, chairman of Lorimar, said yesterday that the company might ultimately decide to sell the film laboratory.
United Artists' decision to spend $300 million is more unexpected, and is a more complex transaction. Other companies, including Cannon Films and Trafalgar Holdings, had been more widely rumored as potential buyers.
Mr. Kerkorian, who controls 80 percent of United Artists' stock and is gearing it up to become a full-scale production operation, now gets control of MGM's feature film and television production units. As Lee Rich, the new chairman of United Artists, put it yesterday, ''We now have two production companies to service our distribution operation.'' Film Revenues Included
Mr. Rich said that the deal includes all the revenues from films such as ''Poltergeist II,'' which opened several weeks ago. But David Londoner, an entertainment analyst at Wertheim & Company, said that it was very complicated. ''They probably have not even negotiated what who will get what and who gets what liabilities and assets,'' he said. ''How do you treat the ancillary revenues, such as sales to television, of MGM films that have already opened? Who gets that income? And which films are in the package? Do you include films that opened a year ago or six months ago? It will probably have to be determined on a film-by-film basis.''
