Shares of entertainment company Metro-Goldwyn-Mayer (NYSE:MGM) rose in yesterday's trading following the announcement that the company is "considering various alternatives designed to distribute more of the Company's wealth to its shareholders."
But the press release didn't say much more, so what got investors all fired up? According to MGM's news file, unnamed sources told various media outlets the company was considering a one-time dividend of as much as $9 per share. MGM has never paid a dividend since going public in 1997.
It's not surprising that investors would be drawn to the potential of such a payout, though, nothing is guaranteed, and most of the money would go toward majority stakeholder Kirk Kerkorian, who owns nearly three-fourths of the company following a fall tender offer for the shares. Furthermore, Kerkorian has worked to get management to loosen the company's purse strings for some time.
Indeed, the release should probably have been worded "is still considering" alternatives: In September, MGM, pressured by Kerkorian, agreed to begin evaluating options. At the time, it looked like a buyback or tender offer was the likeliest outcome, and the company has since done both. With a clean balance sheet and strong projected cash flows, MGM certainly has some financial flexibility.
There are, however, some themes worth watching. MGM has been mentioned as a potential bidder for Motley Fool Stock Advisor recommendation Pixar (NASDAQ:PIXR), which no longer works for Disney (NYSE:DIS). Such a move, however, would be expensive, with Pixar's current market cap, at some $3.5 billion, and content competitors like Time Warner (NYSE:TWX), Sony (NYSE:SNE), and Fox (NYSE:FOX) likely interested, as well.
Scoring Pixar would be a massive coup for any company, but also a tall order. The Nemo-finding company is in a powerful position and would probably rather go with the company that offers it the best distribution deal. If MGM wants to be at the table when Pixar takes offers, however, it will likely need plenty of dough -- something that might be tough if it makes a massive dividend payout.
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Motley Fool contributor Dave Marino-Nachison doesn't own any of the companies in this story. He can be reached via email.
