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.

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.

News Corp. Offers Cash, Debt Assistance to MGM

Bloomberg

News Corp. has expressed interest in providing Metro-Goldwyn-Mayer Inc. with cash and assistance in restructuring debt to keep the studio independent, according to a person with knowledge of the situation.

The non-binding offer from News Corp., owner of the Twentieth Century Fox film studio, was outlined in a letter this week, said the person, who declined to be identified because the talks are private. The person wouldn’t disclose other terms.

MGM, maker of the “James Bond” movies, is evaluating preliminary bids from possible buyers as it struggles with $3.7 billion in debt. News Corp.’s Fox studio distributes DVDs for Los Angeles-based MGM. Chris Petrikin, a Fox spokesman, declined to comment.

The media investment firm Qualia Capital LLC is separately offering MGM $500 million to fund operations as part of a plan that also seeks to convert some debt to equity, according to a another person with knowledge of the situation. In return, Qualia would receive an equity stake in MGM, said the person, who wasn’t authorized to speak publicly.

Susie Arons, an MGM spokeswoman, declined to comment.

News Corp., the owner of Fox television, signed a non- disclosure agreement with MGM on Jan. 15, overcoming a monthlong impasse and allowing it to proceed with an offer, according to a person familiar with the decision.

News Corp., based in New York, gained 9 cents to $12.61 today in Nasdaq Stock Market trading. Class A shares of the company, controlled by Chairman and Chief Executive Officer Rupert Murdoch, gained 51 percent last year.


Interest Respite

MGM said today its lenders extended a respite on interest payments covering the debt until March 31 to give the movie studio time to restructure or find a buyer. The studio will spend “several weeks” evaluating preliminary bids.

Lenders agreed in October to let MGM skip interest payments. The studio has since put itself up for sale.

MGM, created in 1924, made films including “The Wizard of Oz” and “Ben Hur.” The company, owner of a 4,100-film library with titles including “Rocky,” sold many of its early movies prior to its 2005 buyout by a group led by private equity firms Providence Equity Partners and TPG. It has a co-production deal with Warner Bros. on the planned film “The Hobbit.”

Time Warner Inc., owner of the Warner Bros. film studio, was among the first-round bidders, a person familiar with the offers said last week.

Lions Gate Entertainment Corp., the independent film studio run from Santa Monica, California, is also involved in the auction.

Time Warner, based in New York, rose 64 cents to $27.45 today in New York Stock Exchange composite trading. The shares gained 40 percent in 2009. Lions Gate fell 2 cents to $5.20 after rising 5.6 percent last year.