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Amazon Offers $9 Billion to Buy Out MGM, AMZN Stock Price Increases on Morgan Stanley Forecast

Amazon.com Inc (NASDAQ: AMZN) is currently looking to buy an American film and television production company Metro-Goldwyn-Mayer Studios Inc (MGM). According to media reports, the two companies are already in talks for a deal set somewhere between $7 billion and $10 billion. Amazon has put in an official $9 billion offer, but the deal is far from done.

According to a Variety report, there have been stories going through the grapevine that suggested several other tech giants have been looking to MGM, interested in striking their own respective deals. However, none of these were confirmed or held as much water as Amazon’s recent $9 billion offer. The publication also names Amazon Studios and Prime Video senior VP, Mike Hopkins, as the lead for the talks. Reportedly, conversations are directly between Hopkins and MGM board chairman Kevin Ulrich, CEO of Anchorage Capital, MGM’s top shareholder.

In December last year, MGM reportedly concluded its decision to sell, and enlisted Morgan Stanley and LionTree LLC to help with the sale.

The MGM movie library currently boasts of at least 4,000 different titles. For television shows, MGM has about 17,000 hours, including names like Vikings and The Handmaid’s Tale. At the moment, the movie catalog has big names like Rocky, Creed, G.I. Joe, The Hobbit, and Hercules, among others. The James Bond Franchise is reportedly MGM’s most valuable film series.

Amazon’s move to buy MGM sits well with its Prime Video numbers. According to Jeff Bezos, while announcing Q1 results, over 175 million Prime members streamed several movies and TV shows over the past year. Bezos also said that Prime Video has pulled in a 70% year-over-year growth in streaming hours. Among the announced wins is the 12 nominations and two Oscar wins Amazon Studios has received. The general increase in Amazon’s TV and video figures seems to play well with Amazon’s interest in MGM.

Interestingly, MGM fired its chief executive Gary Barber in 2018, for having unauthorized sales conversations with Apple Inc. The discussion was to sell MGM for $6 billion at the time.

Amazon shares climbed in response to a bullish forecast from Morgan Stanley. Brain Nowak put a price target for AMZN at $4,500, even though he believes it is currently overweight. At press time, AMZN is trading at $3,295, after climbing 24.7%.

At the moment, Amazon is trading at 1.2 times its 2022 earnings on a PEG basis, a 30% discount to its median tech peer group. Nowak believes that Amazon’s several businesses, such as retail, healthcare, advertising, cloud, logistics, and autonomous driving, are factors that could propel AMZN. He wrote:

“These factors could justify a higher PEG, and a PEG of ~2-2.5x would imply a ~$5,000-$6,000 share price within the next 12 months (potentially a double from here.” 

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Amazon Offers $9 Billion to Buy Out MGM, AMZN Stock Price Increases on Morgan Stanley Forecast

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