Carl Icahn Likely to Keep MGM Drama Going After Friday's Reorg Vote Deadline

With the ever-resourceful investor in the mix pushing for a rival restructuring plan, 'It's like playing poker against a guy who never runs out of chips,' an insider says.

Despite Friday's 5 p.m. PT deadline for creditors voting on an MGM reorganization plan, the corporate drama is likely to feature surprise twists and turns for a month or longer.

Once Carl Icahn entered the jungle of intrigue surrounding the Lion's reorganization efforts, the long-running saga of financial misery and Hollywood maneuvering was guaranteed to drag on longer than anticipated. Just Thursday, word circulated that MGM had offered Icahn a seat on its proposed new board if he would agree to drop his backing of a rival restructuring plan.

More than 100 MGM lenders are voting on whether to approve a corporate alignment with Spyglass Entertainment, which would get a 4.7% stake in the Lion. The creditors would see almost $4 billion in debt holdings converted into the balance of equity via a "prepackaged" bankruptcy reorganization.

But Icahn is pressing an alternate proposal that would see MGM merge with Lionsgate, where he is the biggest shareholder. Few expect him to abandon the fight, regardless of whether the Spyglass plan is approved by debtholders.

"It's like playing poker against a guy who never runs out of chips," a Hollywood insider said of the ever-resourceful Icahn.

Icahn's corporate maneuvers can become so complicated that it's sometimes hard to tell whose side he's on. At least, that's the contention of a complaint filed by Lionsgate in U.S. District Court on Thursday.

"Icahn has been misleading Lionsgate and its shareholders all along," the film and TV mini-major alleges. "While urging Lionsgate shareholders to support his takeover campaign ... to ensure that Lionsgate did not pursue what he called a 'delusional' MGM transaction, Icahn was quietly amassing a huge position in MGM debt with the undisclosed intention of reaping profits from both sides in an eventual merger. Now, having acquired substantial holdings in both MGM debt and Lionsgate shares, he is aggressively promoting a merger between Lionsgate and MGM."

Almost simultaneously with the complaint's filing, Lionsgate insiders were stressing that its management and Icahn now are firmly allied in pushing an MGM merger.

In the short run, approval of the Spyglass plan would focus most attention on that proposal, which would be filed in U.S. Bankruptcy Court in Los Angeles. Once filed, likely Monday, the plan would take 30-60 days to proceed through court review.

If approved by the court, the Spyglass plan would anoint its co-toppers Gary Barber and Roger Birnbaum as co-CEOs of the Century City studio.

Icahn has accumulated more than $400 million in MGM debt and recently made a couple of tender offers to buy all of the studio's other publicly traded debt at market premiums. Acquiring even more debt would boost his ability to influence events at MGM, which Icahn now says would complement Lionsgate operations if the two companies were merged.

Hedge funds Anchorage, Highland, Davidson Kempner and Solis acquired about 35% of MGM's publicly traded debt during the past year. Approval of a prepackaged bankruptcy would be needed from 51% of lenders and a group representing two-thirds of the amount owed.

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Spyglass is owned by the Cerberus hedge fund, which has done big deals in the past with J.P. Morgan. The investment bank leads a steering committee of the Lion's largest creditors and has been pushing a Spyglass-led reorganization of MGM for more than a year.

MGM's current owners include Providence Equity, TPG Capital, Sony, Comcast, DLJ Merchant and Quadrangle. All would see their equity positions in the studio wiped out in virtually any MGM restructuring.

Stephen Cooper, a turnaround specialist tapped in August 2009 to replace ousted MGM chief Harry Sloan, and CFO Bedi Singh remain nominally in charge of MGM. Film topper Mary Parent had been part of a three-person office of the CEO but recently exited the studio.

Once a restructuring plan is approved, MGM needs quickly to resume film operations, however minimally. That's needed to maintain a 50% interest in Peter Jackson's two-picture adaptation of fantasy-book classic "The Hobbit," with project partner Warner Bros., and to resume development of the next James Bond picture.

Theatrical distribution arrangements also will have to have to be sort out for those and any other future MGM pics.

Until Icahn's late maneuvering, Lionsgate was considered out of the running as an MGM suitor. Suddenly, even if the Spyglass plan is approved, the financier's famous determination and wile are considered a potent enough combo to keep the fight for the legendary Lion going for weeks or months longer.

Whether that means buying up more MGM debt or some other strategy remains to be seen. But he's got the town's attention.

"I think it's about to get interesting," quipped one industry wag.

Said another: "He won't give up now. He smells blood."

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