MGM: On the Block, Again

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In 2009, MGM is scheduled to win back the rights to the James Bond franchise from Sony, which Sony won for its help in assembling the 2004 buyout. Bond is clearly the studio's major selling point, with that franchise alone estimated to be worth $2 billion. But MGM is still struggling under massive debt—$3.7 billion from the initial acquisition and $150 million it has committed from a $500 million revolving credit line its CEO, Harry Sloan, arranged for the company's United Artists unit. The first film under that fund—the 2007 Robert Redford-Tom Cruise-Meryl Streep flick Lions for Lamb—lost about half of MGM's $75 million investment. Another UA film, the World War II thriller Valkyrie, will cost $180 million to produce and market later this year.

The problems at UA forced a change at the top in mid-August, when CEO Paula Wagner stepped down. Wagner, a former agent and Cruise's longtime producer, came to UA with Cruise in late 2006. Together the two own a 35% stake in the studio. MGM says Wagner is transitioning to make films for the studio, and that Cruise will continue to work at the studio.

PRODUCTION CASH CRUNCH

MGM chief Sloan, who was brought in by private equity owners to run the combined MGM and UA studios, has been hustling to put films into production. Earlier this month, MGM's board gave Sloan a new three-year contract, which also will ensure management continuity. Sloan, whose history as an entrepreneur includes creating—and selling—a small Hollywood studio and large European TV company, has also created several cable channels to generate cash from MGM's library. But his early effort to distribute films for independent filmmakers such as the Weinstein Company produced few hits. More recently, Sloan hired Mary Parent, a former top Universal Pictures executive, who has aggressively put projects into production. Still, the company has been constrained in raising added cash for production by the current credit crunch: Royal Bank of Scotland (RBS), which is attempting to raise a $500 million credit line, has been slow to line up institutional investors.

Who's likely to want to buy MGM? Most likely a "strategic buyer." Several are said to be interested in kicking the tires. Qualia Capital, an investment fund focused on media and entertainment, has already been approached by two different groups about acquisition financing, says one source with knowledge of the overtures. The New York-based fund refused comment. The most likely buyers include Sony, which owns a 20% stake. Fox might also be a buyer. Fox refused comment; Sony declined to comment.

See BusinessWeek.com's slide show of the top 25 grossing movies of all time.

Grover is Los Angeles bureau chief for BusinessWeek.