Hollywood's most glamorous studio prepares to sell up

Metro-Goldwyn-Mayer, once the most powerful and prestigious film studio in all Hollywood, is looking for a buyer to bail it out of nearly $4bn (£2.4bn) of debt. The company that gave the world Tom and Jerry cartoons, The Wizard of Oz, and a host of other classic musicals has said it has begun to explore a "potential sale".

The decision is a reversal of a refusal to sell a year ago. But, according to a studio source, it came after a conference call on Friday between MGM vice chairman, restructuring guru Stephen Cooper, and the company's 140 lenders, who are owed $3.7bn (around £2.1bn) in bonds maturing in 2012. In a statement, MGM said it has been granted a respite from interest fee payments until 31 January 2010. This will allow MGM to complete three movies currently in the pipeline: Hot Tub Time Machine, Red Dawn, and The Zookeeper.

It is all a far cry from the days when the studio's lion logo before the opening credits was a guarantee of the best in big-screen entertainment. Founded in 1924 following the merger of Metro Pictures, Goldwyn Pictures, and Louis B Mayer Company, MGM's heyday was between the 1930s and 1950s, when it created some of the most celebrated movies of all time, including The Wizard of Oz, Gone with the Wind, Singin' in the Rain, and Gigi. The studio's golden age was Hollywood's, too, boasting as it did the real top names in the town. Visitors to the studio's commissary (restaurant), were liable to see Joan Crawford tucking into a sandwich while chatting to a Clark Gable – still in costume – and, somewhere out of view, a teenage Judy Garland would be popping the pills that kept her weight down.

But, during the 1960s, studio profits began to decline, and a series of mergers, takeovers and sales left MGM heavily in debt. DVD sales, which it depends on for a huge proportion of its income, have seen a sharp decline in recent years, and MGM's latest release, a remake of the 1980 musical Fame, did poorly in the cinemas, making just $42m worldwide to date.

The company's most valuable asset is its library of 4,000 movie and television shows, including Rocky and Dances WithWolves, but a drop in DVD sales has slashed profits. It also owns subsidiary United Artists, headed by Tom Cruise, whose film Valkyrie grossed nearly $200m worldwide last year.

Financial adviser Moelis & Co is now expected to send out nondisclosure agreements and detailed financial information to interested parties next week. Potential buyers include Time Warner Inc, the parent of the Warner Bros studio, and News Corp, home of 20th Century Fox. But other media moguls have also expressed interest. On Thursday, Michael Burns, Vice Chairman of Lions Gate Entertainment Corporation, said his company was interested. He said: "They have fantastic franchises like James Bond, they have half of The Hobbit. Of course it's interesting to us."