Sony Corp said on Wednesday it was in exclusive negotiations with movie studio Metro-Goldwyn-Mayer Inc on a possible takeover that could bolster its film library but put a dent in its finances.
Sony Vice Chairman Howard Stringer said at the electronics and entertainment conglomerate's annual strategy meeting that it was "preparing an exclusive analysis" of MGM and that it was "four or five days" into a 20-day negotiating period.
Representatives of MGM and Sony have previously declined to comment on reports about such negotiations.
The deal would provide Sony with access to MGM's 4,000-plus film library that includes the James Bond and Pink Panther titles to fulfil Chief Executive Nobuyuki Idei's vision of an interconnected world linking content with Sony's electronics.
"This is a business that we have persevered with since the 1990s...and we do not plan to acquire a business that will result in a loss," Idei told a news conference.
Sony's acquisition of Columbia Pictures in 1989 for $3.4 billion, which at the time was the largest ever acquisition by a Japanese firm, caused numerous headaches for Sony due to losses from elaborate spending budgets and box office duds.
Stringer, the executive in charge of Sony's entertainment business, said the company was not rushing into anything.
"We're being very conservative".
A Sony official said the talks were not necessarily about an acquisition price, but a chance for Sony Pictures to conduct due diligence on MGM, 74-percent owned by 86-year-old billionaire Kirk Kerkorian and his Trancida Corp investment firm.
In April, MGM delayed its annual shareholders' meeting from its scheduled date in May to late June, giving it more time to proceed with what industry sources called late-stage talks on a $5 billion takeover offer from Sony.
Last month, sources told Reuters that Sony is leading an investment consortium that includes private investment funds Providence Equity Partners and Texas Pacific Group.
"We know that MGM...has a great library of films, but it's not entirely clear what is driving that decision," said Marc Desmidt, head of Japanese equities at Merrill Lynch Investment Managers.
Sony is in the second year of a three-year, $3.1 billion restructuring plan aimed at overhauling profitability at its mainstay electronics business and fight off rivals Matsushita Electric Industrial and Sharp Corp.
Its revival plan hinges on the success of Idei's vision, where Sony's electronics are hooked seamlessly into a broadband network that can deliver content from the company's movie and music studios.
So far, competitors, such as Apple Computer Inc with its iPod digital music player, have been more successful in converting a combination of content and hardware into profits.
Standard & Poor's Ratings Services said on Tuesday that the possible acquisition of MGM by Sony could affect Sony's credit quality.
"The acquisition could delay a recovery in Sony's operating performance, given the relatively high risks of the volatile movie business and losses incurred by MGM over the past three years," said S&P credit analyst Fusako Nagao in a release.
Sony's movie division, which accounted for 10 percent of group revenues in the business year ended March 31, 2004, is counting on strong box office returns from "Spider-Man 2", due out this summer, to lift profits at the unit.
"Sony Pictures has begun the year very well with the last seven pictures all profitable," said Stringer. "That is unusual."
