MGM Gets Tendered

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Well, I've gotten at least one thing wrong lately. Last month, I said about motion picture studio Metro-Goldwyn-Mayer (NYSE: MGM) that it was unlikely investor Kirk Kerkorian and his Tracinda Corp. would get to buy all 15 million of the shares they offered to in their tender offer, which closed yesterday.

I couldn't have been more wrong. Last night, Kerkorian and Tracinda said more than 65 million shares were tendered by any number of investors. This means Tracinda is on the hook to buy 5 million shares and Kerkorian 10 million for $16 apiece. The deals, once closed, will bring their combined ownership of Metro-Goldwyn-Mayer (MGM) to 73% from 67%.

While $16 represented a hefty 26% premium on the day before the offer was announced, by the time it commenced in late August, the shares were trading above $14. From that point, they never traded below $14.30 again, and some investors (toward the end, when it was reasonable to conclude that the deal would not be called off) paid more than $15.50.

As a result, few -- if any -- locked in that 26% premium. Yet, it's also true that investors who bought in the early part of the year stood to make a pretty little penny. I can understand the temptation to take home, say, a 60% gain in seven months despite the tax advantages of holding for a year or more.

But there were reasons (besides the strong run up this year) to hang on. The company generates strong cash flow, and activist investor Kerkorian's attention has prompted management to investigate uses for its cash hoard -- perhaps including a buyback or a tender offer of its own.

In the end, however, investors representing approximately one-fourth of the shares outstanding -- which includes those held by management, though they aren't generally part of the float -- decided they didn't care to see what would happen next. That the shares ticked slightly downward this morning supports that notion.

You've got to admit: The enthusiastic response to the tender sure looks like an investor vote of "no confidence" in MGM management -- whether it is justified remains to be seen.