By ANN DONAHUE
Staff Reporter
An extended slump at the box office and more than $225 million in charges related to changes in top management during the second quarter continue to batter the bottom line of Santa Monica-based Metro-Goldwyn-Mayer Inc.
For the second quarter ended June 30, MGM reported a net loss of $249.8 million ($1.65 a share), compared with a net loss of $55.0 million (84 cents) for the like period a year earlier. That comes off another quarter-billion-dollar loss during the first three months of this year.
“They’ve been on a losing streak probably longer than any of the major studios,” said Robert Bucksbaum, president of Reel Source Inc., which tracks box-office results.
Despite all that, MGM stock is on the rise. And company executives are confident enough in Wall Street acceptance that they plan to launch a $750 million secondary offering on Oct. 1; MGM officials declined to comment for this article because they say they are in a quiet period in anticipation of that offering.
Since a series of management changes that took place on April 26, the stock has jumped from $15.81 per share to close on Sept. 22 at $18.56 per share. Analysts attribute the rise to good buzz surrounding the new upper management of the company and perpetual rumors that majority shareholder Kirk Kerkorian may sell the company again.
In April, Frank Mancuso resigned as chief executive. He was replaced by Alex Yemenidjian, who had previously been chief operating officer of MGM Grand Inc., the Las Vegas hotel and casino.
At the same time, A. Robert Pisano resigned from his position as vice chairman of the board and was replaced by Christopher McGurk, former president and chief operating officer of Universal Pictures.
When Yemenidjian and McGurk took over, they announced a string of turnaround proposals. To capture the box-office dollars of cash-rich Generation Y, MGM will start producing more films aimed at teen-agers. The company also is looking at developing its own cable channels to air films from its 5,000-title library.
In addition, MGM recently inked a deal with industry sweetheart Miramax Films. The two will jointly produce and distribute eight films, including “Cold Mountain,” based on the best-selling novel by Charles Frazier, and the remake of invisible rabbit caper “Harvey.”
“There appears to be a lot more strategic planning going on,” said entertainment analyst Dave Davis of Houlihan, Lokey, Howard & Zukin in Los Angeles.
The $750 million equity offering will be used to pay off indebtedness accrued by the company. Almost 90 percent of MGM’s shares are owned by Kerkorian’s investment company, Tracinda Corp., which is eligible to buy even more in this equity offering.
Wall Street is split on the company’s prospects. According to analysts polled by Zacks Investment Service, two rate it a “strong buy,” two a “moderate buy” and two have a “hold” rating. The earnings consensus is that MGM will post a net loss of $2.85 per diluted share in 1999 and a net loss of 24 cents per diluted share in 2000.
By comparison, MGM showed a net loss of $2.08 per diluted share in 1998 and a net loss of $4.47 in 1997, the year the company had its initial public offering.
Some believe that all of the current changes may be a precursor to yet another MGM sale. “I think it’s always a possibility that Kerkorian will sell,” Davis said. “After all, he’s done it twice before.”
Prospective buyers might be tempted by a huge film library, Bucksbaum said. Last week, MGM regained the television broadcast rights to 800 movies from Turner Broadcasting System Inc. Among the movies included in the deal are “West Side Story,” “Annie Hall,” and “Moonstruck.”
“Few people understand how much revenue is earned from film libraries,” Bucksbaum said. “Anytime anybody needs one of those titles, they have to pay.”
Another thing in MGM’s corner is the surprise success of its supernatural thriller “Stigmata,” which earned more than $30 million at the box office during its first 10 days of release, and “The Thomas Crown Affair,” which has been a modest summer hit. In addition, the release of the next installment of the James Bond series, “The World Is Not Enough” is due in November.
“If worse comes to worst, they can still churn out a Bond movie every two years and that will be in the black,” Bucksbaum said.
