MGM Suit Says Kerkorian Got Favored Deal : Understated Value of UA, Small Holder Claims

A class-action lawsuit filed on behalf of public shareholders of MGM/UA Entertainment alleges that 50.1% stockholder Kirk Kerkorian schemed against their interests to end up with more than 80% of its United Artists subsidiary while selling the parent company to Turner Broadcasting System.

The civil suit alleges that Kerkorian understated and concealed the true value of UA. The intent, the suit says, was to discourage MGM/UA public shareholders from buying their fair share of the new UA.

Owners of fewer than 20% of the 49.9% of the MGM/UA shares in public hands subscribed last fall to a Kerkorian offer to buy into the new UA enterprise.

Hit Movie

Among other things, the suit alleges, MGM/UA’s Oct. 4 preliminary prospectus failed to state that “pursuant to an undisclosed agreement between MGM and Turner,” the new UA would retain 100% of the proceeds of its hit movie “Rocky IV.” The film has taken in $123 million at the box office in its first 14 weeks, according to MGM/UA.

Stephen D. Silbert, attorney and spokesman for Kerkorian, said of the suit: “We have bent over backwards to be fair to our shareholders. Ordinarily we do not comment on lawsuits, but this is absolutely without merit.”

Silbert and new UA Chairman Jerry Weintraub also were named as co-defendants along with Kerkorian and 15 MGM/UA directors.

A copy of the suit, which escaped public notice when it was filed about two weeks ago in a Delaware court, was obtained Tuesday from Ernest Kaufmann, a Los Angeles lawyer for the plaintiff, Ellen Rudd, a Southern Californian.

Complaints at Meeting

Kaufmann declined to say whether the “equitable relief” asked in his suit might include an order to block the UA sale.

In the past, Kaufmann has filed other suits against Kerkorian on behalf of stockholders in his public companies.

Coincidentally, complaints were voiced Monday night at a special MGM/UA stockholders meeting by some people buying UA stock. They said they put up cash in advance of the Nov. 26 deadline set by Kerkorian’s wholly owned Tracinda Corp. but have never learned the status of their investment.

In response, Las Vegas-based Tracinda issued a news release Tuesday saying that the stock certificates would be mailed out several days after the closing of the Turner-MGM/UA deal, now expected in two weeks. Also to be sent are checks for accrued interest on their money--estimated at about 17 cents per share.

UA is being sold to Tracinda for $9 a share, or about $480 million. Tracinda had added 18 cents to that price in selling UA shares of MGM/UA minority shareholders.

MGM/UA shareholders will receive $20 cash and one share of a new issue of Turner preferred for each MGM/UA share.

The class-action suit alleged that, when Kerkorian decided last August to sell MGM/UA to Turner, he arranged to use the transaction as “a vehicle to eliminate the minority shareholders of United Artists and appropriate unto himself the valuable business, assets and properties of United Artists at a bargain price.”

Agreed to Transfer

Subsequently, the suit said, Kerkorian caused MGM to enter an agreement with Turner on Oct. 2 under which Turner agreed to transfer UA to Tracinda immediately on Turner’s acquisition of the parent.

On Oct. 4, the suit said, Tracinda offered MGM minority shareholders the option of buying one share of UA for each share of MGM that they owned as of last Sept. 9.

Tracinda’s offer “was not made in good faith but was specifically made subject to numerous conditions and restrictions designed to discourage acceptance,” the suit said. The suit said minority shareholders were required to respond by Oct. 28 on the basis of incomplete and misleading information. The offer, said the suit, specifically stated that no shareholder would be provided a final prospectus until after the acceptance deadline and then only to shareholders who responded affirmatively to the offer.