MGM Studios, Icahn Agree on Bankruptcy Plan

The Wall Street Journal

Metro-Goldwyn-Mayer Inc. filed for bankruptcy-protection Wednesday, cementing a long fall for the iconic Hollywood studio with the roaring-lion logo.

MGM filed a "prepackaged" Chapter 11 bankruptcy in New York that has approval from nearly all its creditors. Creditors last week approved a plan to forgive more than $4 billion in debt for ownership stakes in the restructured studio and turn over management to Spyglass Entertainment co-founders Gary Barber and Roger Birnbaum.

MGM said it anticipates a bankruptcy judge approving its restructuring in about a month, paving the way for a quick trip through bankruptcy court. The studio plans to raise about $500 million upon exiting bankruptcy to fund new films and television shows along with other operations.

Stephen Cooper, a turnaround specialist and co-founder of Zolfo Cooper, will continue to lead MGM during its bankruptcy-court restructuring, the studio said.

MGM had hoped to seek bankruptcy-protection over the weekend but delayed its filing to negotiate with dissident creditor Carl Icahn. Mr. Icahn had offered to buy out other MGM creditors at a premium to upend the vote on the Spyglass restructuring plan but failed to get enough support to block the deal.

Mr. Icahn has been pushing MGM's creditors—led by J.P. Morgan Chase & Co. and hedge funds Anchorage Advisors and Highland Capital Management—to merge with Lions Gate Entertainment Corp., a rival studio that the activist investor has been trying to take over all year as its largest shareholder.

To get its reorganization plan approved by a bankruptcy judge, MGM needed creditors holding roughly two-thirds of the studio's $4 billion debt load and more than half of individual debt holders to vote for the deal. In the end, Mr. Icahn remained among the only holdouts, the people said.

Mr. Icahn said today he would support MGM's restructuring plan after the studio altered certain parts of the deal.

Mr. Icahn will get a board seat once MGM exits bankruptcy. Messrs. Barber and Birnbaum will no longer be chairmen of MGM's new board at the holding company level. And older Spyglass films, including "Seabiscuit" and "The Sixth Sense," will no longer be merged with MGM's film library.

Spyglass, the small production company behind recent films such as the latest incarnation of "Star Trek" and "Get Him to the Greek," had planned to merge its older films for a little more than a 4% equity stake in the studio. But Mr. Icahn protested that the films were overvalued.

In addition, MGM's new shareholders will have the ability to call special meetings under certain circumstances.

Mr. Icahn said the changes enabled MGM to "avoid a potentially costly and disruptive bankruptcy process." MGM called the changes "immaterial" and said they would be filed with the bankruptcy court for approval.

As part of the restructuring plan, the Spyglass founders should still get a sliver of equity in the restructured studio in exchange for other assets. They also have a management-incentive plan that allows them to increase their ownership stakes should MGM's performance rebound.

MGM's largest creditors have agreed informally to continue discussing a possible merger with Lions Gate. But they stopped short of inserting language in the studio's restructuring plan that would require "good faith negotiations."

MGM struggled amid debt taken on in a 2005 leveraged buyout. The studio tried to sell itself in fall 2009 and the early parts of this year but failed to garner offers suitable to creditors. MGM then shifted to pursuing a standalone restructuring through a streamlined bankruptcy process.

MGM was advised by top law firm Skadden, Arps, Slate, Meagher & Flom and investment bank Moelis & Co. Investment bank Houlihan Lokey advised MGM's creditors.

Tribune CEO resigns, Bankruptcy Filed

Traverse City Record-Eagle

 

Tribune Co. CEO Randy Michaels resigned Friday amid tales of raunchy behavior as the company looked to shift attention back to its efforts to emerge from bankruptcy protection. Hours later, the company filed its latest reorganization plan in court.

Michaels' departure comes at a pivotal time for the troubled media company. After nearly two years operating under bankruptcy protection, Tribune Co. is drawing up a reorganization plan that it hopes a federal judge will approve before the end of the year.

Michaels, 58, joined Tribune Co. three years ago following an ill-fated $8.2 billion buyout engineered by real estate mogul Sam Zell in 2007. Michaels became Tribune Co.'s CEO late last year. Michaels, a former radio disc jockey, won Zell's trust as CEO of a radio broadcast company that Zell owned, Jacor Communications.

It seemed likely Michaels' reign was nearing an end anyway. Lenders in line to become the company's new owners will probably want to install their own management team once a bankruptcy reorganization plan gains approval.

Tribune Co., whose holdings include the Chicago Tribune, the Los Angeles Times and more than 20 television and radio stations, offered its latest plan just before a midnight deadline Friday in U.S. Bankruptcy Court in Wilmington.

It came nearly two years after the company filed for Chapter 11 protection, dogged by an industrywide decline in newspaper advertising revenue and debt totaling nearly $13 billion, mainly associated with the Zell-led buyout just a year earlier.

In line with a previously announced settlement with major creditors, Friday's plan promised to increase how much Tribune Co.'s bondholders would get compared with a previous proposal. Tribune is hoping that would be enough to win approval of the much-debated reorganization plan.

The earlier plan got derailed after an independent report found evidence of fraud in the leveraged buyout that led to Tribune Co.'s bankruptcy filing.

Friday's plan proposes a trust, financed by a $20 million loan from the company, that could pursue legal claims arising from the buyout. Earlier in the day, the judge overseeing the case gave the official committee of junior creditors permission to file lawsuits against some parties involved in the 2007 buyout. He gave them until Nov. 1 to file the complaints.

An independent investigator concluded this summer that some aspects of the deal had bordered on fraud. The lawsuits could allege that Tribune Co. wouldn't have had to file for bankruptcy protection if not for fraudulent conduct by Tribune's board members, including Zell, and by some of the company's financial advisers and lenders. Tribune Co. spokesman Gary Weitman declined comment on the possibility of lawsuits.

In exchange for relinquishing more money to Tribune Co.'s bondholders, senior lenders would be shielded from any legal claims tied to early stages of the Zell-led buyout.

The reorganization plan could still be derailed by other Tribune Co. creditors. The proposal has the support of major creditors — JPMorgan Chase & Co., distressed debt specialist Angelo, Gordon & Co. and hedge fund Oaktree Capital Management — as well as the committee of junior lenders. Tribune Co. has not said where some of the company's other lenders stand.

Messages left with attorneys for Aurelius Capital Management, which holds some of Tribune's senior bonds, and for Tribune's junior bondholders were not immediately returned Friday evening.

Once Tribune Co.'s bankruptcy plan is approved, the company is expected to be controlled by creditors who are getting ownership stakes in exchange for forgiving most of the debt incurred in Zell's buyout, which took Tribune Co. private. The debt holders in line to become Tribune Co.'s owners include JPMorgan Chase, Oaktree and Angelo, Gordon.

With new owners likely to appoint new leadership, a four-man executive committee will fill the void created by Michaels' departure in the meantime. The new bosses are Don Liebentritt, Tribune Co.'s chief restructuring officer; Nils Larsen, chief investment officer; Tony Hunter, publisher of the Chicago Tribune; and Eddy Hartenstein, publisher of the Los Angeles Times.

Michaels' exit apparently was accelerated by an unflattering portrait drawn of his management style in a front-page story published by The New York Times two weeks ago.

The story, based on interviews with more than 20 current and former Tribune Co. employees, likened Michaels to the ringleader of a college fraternity house. The newspaper asserted that Michaels helped cultivate a culture filled with sexual innuendo, profanity, poker parties and other bawdy behavior.

Tribune Co.'s board of directors issued statements supporting Michaels in that article, but he quickly found himself under fire again last week when a top lieutenant sent an internal memo with an Internet link featuring a racy video that included a bare-breasted woman pouring booze down her chest. The executive, Lee Abrams, resigned as Tribune Co.'s chief innovation officer.

"During the last few weeks the company has drawn a lot of media attention, much of it negative," the board wrote in an e-mail sent Friday to Tribune Co. employees. "That coverage has diverted attention from the things that matter most: The quality of our media products, the talent and dedication of our people, and the very real progress that we've made over the last two-and-a-half years." Michaels was Tribune Co.'s executive vice president in charge of its broadcasting and interactive divisions before his promotion to CEO. When he was hired, Michaels also brought in many of his former colleagues from his days in radio.

By the time he was named Tribune Co.'s CEO, Michaels already had gained a reputation for using language and engaging in conduct more befitting of the "shock jock" that he once was. Michaels and Zell said they were trying to loosen up a traditionally staid company and usher in fresh thinking at a time of upheaval in the media business. Zell remains Tribune Co.'s chairman.

While Michaels was CEO, Tribune Co.'s financial performance improved, helped by cost cutting that has become common at newspaper publishers throughout the country as they try to offset a steep downturn in advertising sales that has depleted their main source of revenue.

Tribune Co. already has projected its newspapers' revenue will continue to drop for at least two more years while its broadcasting division rebounds. The company's other major newspapers include The (Baltimore) Sun, Hartford (Conn.) Courant and the Orlando (Fla.) Sentinel.

Blockbuster Preparing for September Bankruptcy

LA Times

 

After dominating the home video rental business for more than a decade and struggling to survive in recent years against upstarts Netflix and Redbox, Blockbuster Inc. is preparing to file for bankruptcy next month, according to people who have been briefed on the matter.

Executives from Blockbuster and its senior debt holders last week held meetings with the six major movie studios to discuss their intention to enter a “pre-planned” bankruptcy in mid-September, said several people familiar with the situation who requested anonymity due to the sensitivity of ongoing talks.

Blockbuster is hoping to use its time in Chapter 11 to restructure a crippling debt load of nearly $1 billion and escape leases on 500 or more of it 3,425 stores in the U.S. Maintaining the support of Hollywood's film studios during the process will be critical so that Blockbuster can continue to rely upon an uninterrupted supply of new DVDs.

Blockbuster has lost a total of $1.1 billion since the beginning of 2008 and has been severely hamstrung in efforts to grow its business due to interest payments on $920 million in debt. Earlier this month the company announced that most of its debt holders had agreed to a forbearance on interest payments until Sept. 30, during which time it would attempt a recapitalization.

Last week Dallas-based Blockbuster's chief executive, Jim Keyes, came to Los Angeles to hold individual meetings with executives at studios including 20th Century Fox, Paramount Pictures, Sony Pictures, Universal Pictures, Walt Disney Studios and Warner Bros. He was joined by a team of restructuring consultants hired to help turn around the struggling company, along with its senior debt holders who would likely end up owning a substantial portion of Blockbuster following bankruptcy.

Former Sony Pictures home entertainment president Ben Feingold, who is serving as an advisor to the debt holders, was present as well.

Though its plans are not yet set in stone, people knowledgeable about the discussions said the Blockbuster representatives presented a mid-September bankruptcy as the most likely scenario. It would enter what is known as a “pre-planned bankruptcy,” meaning most but not all creditors would be on board ahead of time, including senior debt holders and content suppliers.

One of the primary goals of the bankruptcy process, which the company said it hopes would last about five months, would be to escape costly leases for some of its worst-performing stores. Though Blockbuster hasn’t decided exactly how many locations it would seek to shutter as part of a bankruptcy, executives told the major studios it is looking at between 500 and 800.

Blockbuster closed nearly 1,000 stores in the last year alone, a reflection of consumers’ rapidly declining interest in renting DVDs from retail locations now that they can rent them from ubiquitous kiosks in grocery stores, in the mail, or via the Internet.

If it successfully exits bankruptcy, Blockbuster has told Hollywood studios, it hopes to grow through non-retail initiatives. Kiosk manufacturer NCR Corp., for instance, has already deployed about 6,000 Blockbuster-branded kiosks that, like Redbox, rent DVDs for $1 per night.

The company also hopes to expand its presence in the still nascent digital distribution space, through which a growing number of customers are downloading or streaming movies on computers, Internet-connected televisions, and mobile phones.

Most studios are believed to be supportive of Blockbuster’s efforts, as they want to see it remain in business as a viable competitor to Netflix and Redbox, particularly since the formerly second-largest DVD rental store, Hollywood Video parent firm Movie Gallery Inc., went out of business in April.

But there are still some issues to be resolved, including the company’s desire to continue offering movies from all the studios on the same day they go on sale. Fox, Universal and Warner have all instituted a 28-day window on rentals through Redbox and Netflix.

The studios would likely be protected from any significant losses on payments Blockbuster might owe them at the time it files for bankruptcy under the proposed plan. But they would lose revenue from any stores shut down.

The parties most impacted would be Blockbuster’s junior debt holders and the landlords of leases that would be canceled under the proposed bankruptcy. It remains to be seen whether they would attempt to challenge a plan that left them with a fraction of what they are owed.

If the company does not enter bankruptcy, it would need to find a new investor or convince its debt owners to significantly reduce its interest payments for the foreseeable future.

A Blockbuster spokeswoman declined to comment on the studio meetings. In a statement, she said, “The extension of our forbearance agreement is a strong sign of support from our senior secured noteholders as we work toward putting in place a more appropriate capital structure to support Blockbuster’s long-term growth. … Our discussions continue to be productive and we have every reason to believe we will come out of the recapitalization process financially stronger and more competitively positioned for the future.”

Blockbuster stock, which last month was delisted by the New York Stock Exchange because of its ongoing low price and moved to the over-the-counter market, closed Thursday at 11 cents. The company’s total market value is $24 million.

In 1994 it was acquired by former owner Viacom Inc. for $8.4 billion.

Affiliated Media Inc. Files Chapter 11

AP

The owner of The Denver Post, San Jose Mercury News and 52 other daily newspapers filed for bankruptcy protection Friday, joining the procession of publishers choking on too much debt.

The filing by Affiliated Media Inc., the holding company of MediaNews Group, was expected. The privately held company had said Jan. 15 that it would seek to reorganize its finances in bankruptcy court.

MediaNews, based in Denver, says its newspapers and 8,700 employees won't be affected during the bankruptcy proceedings.

Affiliated Media worked with its major lenders and shareholders to hammer out a plan aimed at shortening the company's stay in federal bankruptcy court in Delaware. Affiliated hopes to emerge from bankruptcy protection within a month or two.

The plan calls for Affiliated Media's debt to fall to $179 million from $930 million, according to a person familiar with some of the additional bankruptcy documents expected to be filed late Friday. This person wasn't authorized to discuss them before they were filed.

In exchange for this $751 million concession, a group of lenders led by Bank of America become the company's majority owners with 88 percent of the stock. The remaining 12 percent goes to MediaNews' management team, which is led by William Dean Singleton, who is also chairman of The Associated Press. The MediaNews executives will receive warrants that eventually could boost their combined stakes to 20 percent.

Heading into the bankruptcy filing, Singleton held a roughly 30 percent stake in Affiliated.

Richard Scudder, who co-founded MediaNews with Singleton in 1985, will relinquish his interests in the company to the lenders.

Singleton will also continue to run MediaNews, signaling the lenders remain confident in him despite the company's recent struggles.

The decision probably stems from Singleton's reputation as a hard-nosed businessman who has never shied away from cutting costs, said Alan Mutter, a former newspaper editor who blogs on the media business.

"Who do we know who can go in and run the hell out of a newspaper and make a buck?" he said. "The only answer is William Dean Singleton."

MediaNews spokesman Seth Faison declined to comment Friday.

Despite MediaNews' troubles, Singleton says all but one of the company's newspapers are profitable. He hasn't identified which one is losing money.

"By aggressively facing the challenges of the newspaper business, we will continue to deliver high-quality journalism and will prepare our newspapers for a promising future," Singleton said in a statement Friday.

Apparently, not even Singleton could figure out a way to deal with all the debt that MediaNews took on to expand into new markets. Like other publishers, Singleton borrowed heavily before the Internet and recent recession began to devour the newspaper's main source of income - advertising.

Last year was particularly hard on big newspapers as the industry's print ad sales plunged by nearly 30 percent. Some of the revenue is expected to return as the economy bounces back, but much of it is expected to remain on the Internet, where many marketers are finding they can generate more sales for less money.

At least 14 U.S. newspaper publishers have now filed for bankruptcy protection in the past 13 months.

"What (Singleton) did was what everyone else did - make acquisitions not knowing that in 18 months they'd see a 30 percent decline in advertising and then run out of options," said newspaper analyst Edward Atorino of Benchmark Co.

Affiliated's annual revenue has fallen by $270 million, or 20 percent, during the past two fiscal years. The erosion pared Affiliated's revenue to $1.06 billion in fiscal 2009, which ended June 30.

Another major newspaper publisher, Hearst Corp., is one of the biggest losers in Affiliated's reorganization.

The plan calls for Hearst to lose the roughly 30 percent stake it held in MediaNews' newspapers outside the San Francisco Bay area.

Hearst got its MediaNews stock as part of a complicated deal to acquire The Monterey County Herald and St. Paul Pioneer Press from McClatchy Co. in 2006. Hearst invested $317.3 million in MediaNews, which then bought the two newspapers and the Torrance Daily Breeze from Hearst.

Although the bankruptcy documents don't say it directly, Hearst's holdings clearly weren't worth anywhere close to the $317 million that it paid a few years ago. Affiliated Media estimates the market value of its total enterprise at $190 million to $230 million. The company also said it has $53 million in cash.

As part of the bankruptcy case, Hearst will get warrants that could be converted into MediaNews stock in the future, Faison said.

Hearst spokesman Paul Luthringer declined to comment.

Canwest Global Files For Bankruptcy

Canada's largest media company files for bankruptcy protection as it struggles with a £2.4bn debt
Story from the Guardian

Canada's largest media company, Canwest Global Communications, has filed for bankruptcy protection as it struggles to unearth itself from a C$4bn (£2.4bn) mountain of debt.

The sprawling Winnipeg-based empire owns a range of broadcasting and print businesses, including the National Post newspaper, a conservative-leaning daily founded in 1998 by the disgraced media mogul Conrad Black.

Canwest's chief executive, Leonard Asper, said business would carry on as usual despite the legal process: "We are firmly committed to moving quickly to restructure the company and emerge from creditor protection financially stronger and more competitive."

Canwest's bankruptcy filing in an Ontario court this morning covered the National Post and television channels including Global Television, MovieTime and DejaView. But other parts of the company were left out, including papers such as the Montreal Gazette and the Calgary Herald, plus a joint venture with BBC Worldwide to run BBC Canada.

Established by the late media mogul Israel 'Izzy' Asper, the Canwest group can trace its origins back to a single Winnipeg television station in the 1970s. The company expanded in broadcasting through the 1990s before paying $3.2bn for a chain of newspapers owned by Conrad Black's Hollinger empire in 2000 – a deal widely viewed as key to Canwest's present difficulties because it loaded the company with debt.

In a memo to the company's 1,700 employees, Canwest's chief executive acknowledged that the filing was likely to create "some personal anxiety". But he offered reassurance on jobs: "Let me say quickly that this process is not going to lead to significant job losses."

Canwest has a tentative agreement with its creditors on a financial restructuring of the business. The deal would essentially hand control to lenders, leaving existing shareholders with ownership of just 2.3%. Leonard Asper, who is Izzy Asper's son, said he hoped the refinancing could be completed within four to six months.

Burdened by its level of borrowing, Canwest has struggled to keep up repayments on its obligations as the global recession has bitten a chunk out of advertising revenue. After interest payments and write-downs in the value of assets, the company made a C$1.58bn loss for the nine months to May.

The firm has been selling assets to raise money. It recently offloaded its E! television stations, the American magazine New Republic and a majority stake in Australia's Ten Network.

The National Post still publishes a regular column by Conrad Black, who is serving a sentence for fraud in a US prison in Florida. The paper is the second of Black's former titles to slip into bankruptcy, following in the footsteps of the Chicago Sun-Times.