MGM to Investors: No IPO Filing Yet, But Other News Is Good

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MGM CEO Gary Barber

CEO Gary Barber and CFO Dene B. Stratton boast of the privately-held company's spectacular results, lower debt and an additional stock buyback in a Tuesday conference call.

It looks like Metro Goldwyn Mayer's board has decided against an IPO immediately, though they've not ruled out moving forward later this year or in the future.

In a conference call Tuesday morning with investors who hold the thinly-traded private stock, CEO Gary Barber and CFO Dene B. Stratton said that they could not comment on an IPO because if they are going forward, it requires them to do another filing with the SEC (called an S-1) before they could discuss it publicly. Unlike the filing last year which was done confidentially, this filing would have to be public -- and since that filing has not yet happened, an IPO is not imminent.

Most of the talk on the call was about the great earnings reported for the fourth quarter of 2012, the reduction in the company’s debt and plans to reduce it even more.

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On Monday, MGM revealed that its revenue was $1.38 billion, up 97 percent for the fourth quarter over the $681 million in the same quarter in 2011. The gains came primarily from the spectacular success of the James Bond movie Skyfall and The Hobbit: An Unexpected Journey, both of which have grossed over $1 billion worldwide.

One reason to hold off on doing an IPO now is that a lot of the revenue, especially from The Hobbit, will not be recorded until numbers come in from the first quarter of 2013. While those won’t be officially announced for three months, MGM could opt to put out a “flash” report much sooner (possibly within a month). The combination of results from the two quarters will make for a more powerful presentation if they do an IPO.

The company may also be trying to attract new strategic investors or to open the door to other investments, borrowings or business combinations, or even a sale of the whole company. If there is an increase in investments or cash, that could also lead to a dividend payout to shareholders.

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On today's call, investors were told the next Bond film will be out within three years, most likely in late 2014. Other sources have said it could start shooting by the end of this year.

MGM's private stock was trading at $42 a share early Tuesday, nearly double what it was a year ago. That puts investors who traded debt for equity after the 2010 bankruptcy ahead on their investment.

Even at that level, MGM is still trading at a low multiple to its earnings and value -- about half what the public market values Lionsgate, another independent studio which has shown strong results in the past year.

MGM’s biggest current shareholder is Anchorage Capital Group LLC. Other major investors include Highland Capital Management LP, Solus Alternative Asset Management LP and Davidson Kempner Capital Management.

Investors also learned today that in the fourth quarter MGM bought back about 1.3 million shares of its stock at a cost of around $40 million, making the existing shares more valuable. That's in addition to the $590 million worth of stock the company acquired from investor Carl Icahn last summer.

MGM has a $650 million revolving credit line. In the third quarter of 2012, they had drawn about $370 million of that. As of now, investors were told, MGM has paid that number down to about $250 million, with plans to reduce that even more this year.

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The studio’s financial obligations are also down and its cash holdings are up. In the third quarter last year they had obligations to pay Warner Bros. (New Line Cinema), which released The Hobbit, and Sony, which released Skyfall, about  $277 million to cover their portion of the cost to make and release those movies. That obligation is down to about $15 million.

The company is said to have plenty of cash and resources for continuing operations – at least $70 million on hand at present - to service their strategy of making and investing in movies but not being the distributor or sales agent. That is in line with the pared down size of the new MGM, which allows them to keep the number of employees down.

MGM executives were also optimistic about the prospects for the upcoming movie GI Joe: Retaliation, which Paramount Pictures releases in U.S. theaters March 28 in 3-D. MGM told the investors the 3-D release gives it especially favorable prospects overseas.

They also said Hansel & Gretel: Witch Hunters, which grossed nearly $200 million worldwide in its theatrical run that began in January, performed well enough for work to begin on a sequel.

MGM is expected to release more fourth quarter information, full financials and a transcript of its conference call at about 4 pm PST Tuesday.