Amazon and MGM Studios: What's the Deal?

Amazon’s acquisition of MGM Studios

Acquisition Structure

• Purchase price @ $8.45bn - 40% premium over valuations set by Apple and Comcast in previous rounds of interest

• Deal has not gone through (regulatory approval)

The acquisition of MGM by Amazon, at the current value of $8.45bn, is likely to benefit both companies heavily. For a long time MGM has been seen as a takeover target but no company had an offer attractive enough, with valuations from companies such as Apple and Comcast being around 40% lower than Amazon’s bid.

This takeover is likely to help Amazon’s Prime streaming service, with the studio’s vast catalogue of movies now to be available on the site, attracting and maintaining a reliable flow of subscriptions especially since this is not Amazon’s core business area.

Why did Amazon pick MGM Studios to pursue?

Furthermore, the influx of production staff and experience from MGM will improve Amazon’s production capabilities. Crucially, this expansion allows Amazon to compete with competitors such as Netflix, Disney+, Hulu and others and differentiate themselves from the consumers’ point of view given the homogeneity of products. MGM’s earnings before interest, taxes, depreciation and amortization rose 48% to about $307 million last year, lifted by profit from its 4,000-title film library. MGM has hired advisers from LionTree LLC and Morgan Stanley for the transaction and initially the studio was said to seek around $5bn.