19 July 2010

Lions Gate Said to Woo MGM Studio Creditors; Seeks Terms Icahn Would Back

Bloomberg News

Lions Gate Entertainment Corp., the independent film and TV producer, has approached creditors of ailing Metro-Goldwyn-Mayer Inc. to help shape a plan to acquire the studio, two people with knowledge of the situation said.

Lions Gate Vice Chairman Michael Burns has been meeting in New York with investors who hold some of MGM’s $3.7 billion debt, according to the people, who requested anonymity because the discussions are private.

Any agreement to buy Los Angeles-based MGM, which won another loan reprieve from creditors today, would have to be approved by Carl Icahn, Lions Gate’s largest shareholder. He took a 10-day break from efforts to gain control of Vancouver- based Lions Gate’s board so the company could make a case for certain acquisitions. That standstill agreement expires on July 19. Debt-hobbled MGM is co-owner of the James Bond franchise.

Icahn, 74, who holds almost 38 percent of Lions Gate shares, isn’t a party to the talks, one person with knowledge of Burns’s efforts said yesterday. The billionaire investor threatened a proxy fight to elect his own board at Lions Gate, distributor of the “Saw” movies, after failing to gain a majority of the stock with a $7-a-share takeover bid.

Icahn, who said in March he opposes the purchase of film libraries such as MGM’s, couldn’t be reached. Burns didn’t respond to a request for comment.

Michael Utley, spokesman for Houlihan Lokey, the investment bank advising MGM’s creditor committee, declined to comment, as did Susie Arons, an outside spokeswoman for MGM.

The creditors, who formed a committee that represents MGM’s 100 or so debt holders, haven’t agreed on a unified position, the people said.

Balance Sheet

The creditors’ lack of unity underscores the difficulty Burns faces as he tries to craft a deal that will satisfy MGM’s debt holders and Icahn, who has said he won’t approve a large equity-for-debt swap that dilutes his holdings.

Peter Wilkes, a Lions Gate spokesman, said on July 9 the studio “wouldn’t do a highly leveraged deal that added significant debt to our balance sheet.”

Lions Gate said in February that it hired Morgan Stanley as its financial adviser after receiving a tender offer from Icahn.

Shares of the company, also producer of the Emmy winning “Mad Men” TV series, gained 8 cents to $6.61 at 4:03 p.m. in New York Stock Exchange composite trading. Lions Gate, run from Santa Monica, California, has gained 14 percent this year.

MGM was put up for sale last year after falling behind on its debts. Creditors have granted the studio several waivers on its payments. The studio’s newest forbearance agreement, which was announced in a statement today, expires on Sept. 15, almost one year after the first reprieve was announced.

The studio was taken private for $5 billion in 2005 by buyers including Providence Equity Partners.

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