- 38 -
not be sufficient to offset the entire gain and some of
Group’s NOLs are subject to limitations which prevent
their use to offset MGM’s income on the deemed asset
sale). After waiting for at least one year, Investor
would buy CDR’s other 49.5% interest. Again the LLC
would not make an election under section 754 of the
Code to adjust the basis of its assets. As a result of
these transactions, Investor would own 99% of the LLC,
and Group and Holdings could be liquidated into the
LLC. The capital loss on the liquidation (which would
be approximately $1.4 billion) would be allocated to
Investor.
In June 1996, Houlihan Lokey prepared a “Pro-Forma Library
Valuation” as of August 31, 1996, valuing New MGM’s film library
at $2.6 billion, an amount greatly in excess of MGM’s capital and
debt.23 Mr. Lerner testified that it was a valuation which “we
thought was fairly good, a fairly good guess at what the assets
were worth”, but that Safari wanted to prepare its bid below this
estimate in hopes of getting a discount. Accordingly, Safari
submitted a $1.2 billion bid, which it believed was the high bid.
D. Kerkorian Moves in and Buys MGM
Safari was one of a number of bidders for New MGM. New
MGM’s management was interested in finding parties who would fund
the acquisition of New MGM and retain existing management. New
MGM’s management met with Messrs. Lerner and Ackerman to discuss
the possibility of doing a transaction with the management group.
New MGM’s management, however, decided against it; they lacked
23 Mr. Lerner testified that this valuation did not take
into account corporate taxes, overhead, and remake rights of
several important pictures such as the “James Bond”, “Pink
Panther”, and “Rocky” movies.
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