Paramount already owns about 14 per cent of MGM and aims to acquire the rest for 15 cents per share, amounting to an offer worth just over $50 million.
Shares in MGM dropped steeply on Tuesday, losing 20 per cent to 16 cents in mid-day trading. Paramount shares nudged up slightly to $45.56.
Clayton Riddell, CEO of both companies, owns about 31.6 per cent of MGM Energy and has indicated he'll support the transaction.
MGM says a committee of independent board members will be established to weigh the proposal.
The company cautioned that no decisions or official recommendations have been made by the committee or the board of directors.
"The proposal is non-binding and is subject to a number of important conditions in favour of Paramount. In addition, the proposal provides that MGM Energy will be permitted to seek alternative acquisition proposals for a period of time after any definitive agreement is entered into," said MGM.
"There can be no assurance that the transaction contemplated by the proposal, or any other transaction, will be proceeded with or recommended by the board of directors."