Sony agrees to buy MGM in $5bn deal

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Sony clinched a $5bn (£2.8bn) deal to buy the film studio MGM last night after Time Warner said it was withdrawing from the closely fought battle for the business.

While the formal deal has yet to be signed, Sony has reached an agreement in principle to buy MGM. It has been able to claim victory after the eleventh-hour intervention of the US cable giant Comcast, which is understood to have joined Sony's alliance and has provided extra funding for the bid.

Sony, which is also backed by private equity partners Texas Pacific Group and Providence Equity Partners, raised the price of its offer to nearly $5bn, including $2bn of debt.

Time Warner, which was regarded as the favourite to win MGM for much of the protracted bidding war, issued a statement saying it had been unable to agree a price with MGM. Sony is thought to be offering about $12 a share, about 75 cents a share higher than its original bid of $11.25 a share. Time Warner had offered about $11 a share, or between $4.5bn and $4.6bn.

Both companies have stalked MGM for months because they are keen to snap up one of Hollywood's biggest libraries of films, with more than 4,000 titles including the The Pink Panther and Rocky.

While Sony has always been ahead of Time Warner in terms of the total amount of cash on the table for MGM, the only remaining independent Hollywood film studio, there have been doubts about its ability to finance the deal. The Japanese media and technology giant dealt with those concerns over the weekend by hammering out better terms with its private equity partners.

One provision Sony has put in place is a $150m non-refundable deposit for MGM in the event that it fails to ultimately sign a merger agreement.

The improvement in Sony's offer came after Time Warner tried to sweeten its deal by switching from a shares offer to an all-cash bid. However, the company's chairman and chief executive, Dick Parsons, yesterday made a statement saying it was pulling out. "Although MGM is a valuable asset, we have decided to withdraw our bid.... Time Warner could not reach agreement with MGM at a price that would have represented a prudent use of our growing financial capacity. We are confident there are other capital allocation choices that will enable us to continue to build shareholder value," Mr Parsons said.

While Sony is now in pole position, the deal could still fall through. It hinges on the wishes of Kerk Kerkorian, MGM's controlling shareholder. Mr Kerkorian has a history of selling his stake in MGM, only to buy it back later. Since 1970, when he first bought a controlling share in MGM, the 87-year-old has sold the business twice.