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.

Icahn Sues Lions Gate, Rachesky Over Debt-Equity Swap

Bloomberg

Carl Icahn sued Lions Gate Entertainment Corp. in Canada and New York to reverse a debt- for-equity swap between the Vancouver-based movie studio and board member Mark Rachesky.

The billionaire investor is seeking an order to prevent Rachesky from selling the shares or exercising voting rights attached to them, according to the lawsuit filed July 23 in the Supreme Court of British Columbia.

Icahn, 74, is trying to reverse the swap that hinders his hostile bid for the studio by putting more shares in the hands of opponents. The swap boosted Rachesky’s stake, the second- largest after Icahn’s, to 28.9 percent. Icahn has 33 percent.

“I find this scheme reprehensible,” Icahn said in an e- mailed statement today. “I will spare no expense in holding the culpable parties responsible for their behavior.”

A second lawsuit was filed today in New York State Supreme Court. Icahn said his $6.50-a-share tender offer will also continue.

“This case involves an unlawful sham transaction by which an incumbent board of directors, management and their co- conspirators sought to further entrench their own positions and to protect their personal interests in compensation and perks at the sole expense of their company,” according to Icahn’s New York complaint.

Icahn previously offered $7 a share for Lions Gate in a tender that ended June 30. He has criticized the company’s spending on films and said in June that he planned a proxy fight to replace management and the board.

Diluted Holding

Peter Wilkes, a Lions Gate spokesman, didn’t return a call seeking comment.

Last week, Lions Gate issued new shares to Rachesky’s MHR Fund Management LLC, putting 12 percent more of the stock in friendly hands and diluting Icahn’s holding. Rachesky, 51, increased his stake through a transaction in which one of his investment funds bought $100 million of convertible notes from Kornitzer Capital Management, then exchanged debt for stock.

Rachesky acquired 16.2 million shares in the exchange at a price of $6.20 each, Icahn said.

The studio, distributor of the “Saw” horror films and producer of the Emmy-winning “Mad Men” TV series, announced the Rachesky deal days after a 10-day truce with Icahn expired.

During the truce, the two sides discussed potential acquisitions and possible board seats for Icahn. The talks didn’t yield results that would merit an extension, Icahn said.

Lions Gate, run from Santa Monica, California, rose 12 cents, or 1.8 percent, to $6.90 at 4:02 p.m. in New York Stock Exchange composite trading. The shares have gained 19 percent this year.

The case is Icahn v. Lions Gate Entertainment Corp., 651076/2010, Supreme Court, New York County (Manhattan).

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.

Lions Gate adopts 'Poison Pill' to Thwart Icahn

Associated Press

NEW YORK — Boutique film studio Lions Gate Entertainment Corp. has adopted a shareholder rights plan, also known as a "poison pill," to prevent hostile takeover attempts such as the one billionaire investor Carl Icahn is conducting.

The plan, announced late Thursday, would let shareholders buy extra shares at a deep discount. The right doesn't apply to any shareholder attempting to take control of the company. If exercised, the plan would dilute the stake of any potential acquirer.

Lions Gate has been battling Icahn for a year, and it's not the first time it has attempted to put a poison pill in place. The British Columbia Securities Commission voided an earlier plan in April, saying the new shares could not be traded.

Lions Gate, based in Vancouver but operated out of Santa Monica, Calif., falls under the jurisdiction of the Canadian province of British Columbia.

On Thursday, Icahn said he had gained 33.9 percent of Lions Gate shares through a tender offer. That leaves him short of a controlling interest, but he can block decisions that require a two-thirds shareholder vote.

Investors appear to be betting on a higher bid, though Icahn has said that he will not raise his offer. The stock closed at $7.15 on Thursday, 15 cents above Icahn's tender offer.