Lazard Freres, which is handling the sale for the studio's current French owner, Credit Lyonnais, earlier this week asked the three bidders still remaining in the race to improve on their previous bids. Credit Lyonnais had been hoping to raise a minimum of $1.5bn-$2bn (pounds 970m-pounds 1.3bn).
The contest is believed to have been narrowed down toPolyGram, the music and film unit of Philips, Rupert Murdoch's News Corporation, and Los Angeles-based Morgan Creek Productions. Analysts did not expect any of them to increase their bids as high as $1.5bn, however.
The auction is being complicated by a contract now in place between MGM and Warner Bros that gives Warner Bros the right to distribute all MGM home videos. Warner Bros has reportedly indicated that it would seek to hold the new owners of MGM to the contract, implying that they too would have to distribute through the studio until the agreement expires in 2003.
Both PolyGram and News Corp are believed to have included in their bids requests for indemnifications against the Warner Bros contract. It is not an issue for Morgan Creek, however, because its films are already distributed by Warner Bros.
Morgan Creek was thought to be more likely than the other two to respond to the plea for an improved bid. Days ago it secured $1bn in financing from Chase Manhattan Bank and may be in a position to go to around $1.4bn. It was thought likely that both News Corp and PolyGram would stick close to their original offers of closer to $1.1bn.