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Valuation Expert Seth Willenson Says MGM Price Too High

He tells WaxWord: “A bunch of well intentioned, highly educated analysts are going to overpay for MGM”

 A veteran of Hollywood finance for four decades, industry consultant Seth Willenson has given expert testimony in court cases involving valuations of studios, production companies and movie libraries. In a grill with WaxWord, he gives his insight into whether MGM is overvalued at a $2 billion asking price, and whether he think the deal will ultimately get done.

What do you think the MGM library is worth?
Over the years I’ve looked at the library at MGM. The problem is that the devil is in the details. The library is primarily the Bond franchise as an attractive distribution deal, which is big enough that it throws off cash. You have more recent titles that are very mixed. It’s not much better than Lionsgate in terms of looking at current productions.

Why do you say that? 
Well, the United Artists library is at MGM. Unfortunately, they had a lot of titles that expired after 20-25 years and reverted back to the producers. Saul Zaentz always withheld all the rights to his movies except theatrical.

OK, so what’s it worth?
It’s worth what you want it to be worth. The value of the library is: What’s it worth to whom? How will you collateralize? If you have a vision in terms of what you’re going to do with the library, then you can overpay, knowing what that vision will be.

Is Time Warner capable of having a vision for that library?
I think Time Warner has gone through a lot of businesses that are based on creation of motion pictures. They learned their lesson with AOL.

But is Jeff Bewkes terrified that people will say he overpaid?
I think he is.

The MGM library is worth in the mid-hundreds of millions of dollars, and that’s pushing the value.

Do you think Time Warner is best situated to buy it?
There’s no question that Time Warner could monetize the library the best. There’s no relationship between the movies made after (near-)bankruptcy (in 1997) and what the classic library was. The new MGM is mainly a bunch of  mediocre, mostly failed studio releases. But you have a bunch of Wall Street guys who are deal junkies and haven’t the faintest idea how to monetize this stuff. I’d say it’s certainly not worth over a billion dollars.

But someone will pay it?
From my experience, from history of this business, somebody is going to overpay. You have a bunch of investment bankers who don’t know what they’re doing, trying to come up with a discounted cash flow analysis, trying to get people who looking to earn more than two percent on their money – they will justify it.

So someone will overpay for MGM?
There’s no doubt in my mind that a bunch of well intentioned, highly educated analysts are going to overpay for MGM, and the consequences are going to be borne by the bond and shareholders.