updated 9/13/2004 8:28:50 PM ET 2004-09-14T00:28:50

A consortium led by Sony Corp. has agreed in principle to acquire famed Hollywood studio Metro-Goldwyn-Mayer Inc. for nearly $3 billion, MGM said late Monday.

The company said it received a cash deposit of $150 million on Monday from Sony, along with private equity companies Providence Equity Partners Inc., Texas Pacific Group and DLJ Merchant Banking Partners.

MGM said its management will recommend the deal, which it called a “proposed merger” to its board by Sept. 27.

Sony has agreed to pay $12 per share for MGM, 45 cents more than MGM’s closing price of $11.55 Monday on the New York Stock Exchange. The deal also calls for Sony to assume about $1.9 billion in MGM debt.

Sony’s winning bid comes after Time Warner Inc. dropped out of the competition earlier Monday.

The sale would mark the third time billionaire investor Kirk Kerkorian has sold the film studio, once best known for its musical hits like “Singing in the Rain” and “Meet Me in St. Louis.” Kerkorian, through his Tracinda Group, owns 74 percent of MGM’s outstanding shares. The sale to Sony would net him about $2.1 billion.

Sony is expected to shutter MGM’s current production, with the possible exception of the “James Bond” franchise. MGM also produces films under the United Artists label.

But MGM has a considerable library of more than 4,100 titles, including the “Pink Panther” and “Rocky” franchises. Analysts have estimated MGM’s library will generate $440 million in cash flow in 2004 by exploiting only 1,500, or about 36 percent, of its titles on the newer DVD format.

Time Warner had been seen as the front-runner for MGM going into the weekend. But Sony raised its offer, setting off a bidding war that Time Warner concluded it did not want.

“As we pledged to our shareholders, we approach every potential acquisition with strict financial discipline,” Time Warner chairman and chief executive Dick Parsons said. “Unfortunately, Time Warner could not reach agreement with MGM at a price that would have represented a prudent use of our growing financial capacity.”

Parsons, who has often said Time Warner is interested in expanding its presence in cable television, hinted Monday that the cash it saved from the MGM bid could be used to bolster its cable presence. “We are confident that there are other capital allocation choices that will enable us to continue to build shareholder value,” Parson said.

Time Warner is known to be interested in bidding on the cable assets of bankrupt Adelphia Communications Corp.

Sony has also approached cable television giant Comcast Corp. about becoming a minority investor in the new company after the Sony/MGM deal closes, although no deal has been reached, according to a source familiar with those discussions.

Comcast and Sony have reached a deal to distribute Sony’s Columbia/Tri-Star film library on Comcast’s video-on-demand platform, the source said. That deal could expand to include MGM’s library of films and result in Comcast making an investment in the new company.

A Comcast spokeswoman declined to comment.

Copyright 2004 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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