Lionsgate, Carl Icahn take aim at MGM

11:04 AM PST 10/12/2010 by Carl DiOrio

Merger bid comes with support of key shareholders

Lionsgate's latest play for a debt-laden MGM -- an updated proposal for the minimajor to merge with the financially ailing Lion -- followed discussions with major shareholders including Carl Icahn.

Whether the move amounts to an Icahn-quarterbacked Hail Mary pass or something with greater prospects of success was unclear. The developments seemed to blind-side officials at MGM, who are in the final stages of a proposed studio reorganization involving Spyglass Entertainment.

A vote among more than 100 MGM lenders is currently afoot as a prelude to the filing of a prepackaged bankruptcy reorganization plan in U.S. Bankruptcy Court that would give Spyglass operating control of the Century City studio.

But in a Tuesday regulatory filing, Lionsgate said that it has sent MGM a proposal for a "business combination" between the two companies.

The resulting company would be 45% owned by Lionsgate shareholders. The balance of company equity would be held by MGM creditors, the Los Angeles Times reported.

The proposed transaction was made after "detailed discussions" between Lionsgate and Icahn and with support from additional major shareholders Gordon Crawford of Capital Research Management and Mark Rachesky.

"The company believes that Mr. Icahn, in addition to MHR Fund Management and Capital Research Global Investors, the company's three largest shareholders, are all supportive of the transaction," Lionsgate said.

Icahn is Lionsgate's biggest shareholder and also holds an unspecified amount of MGM debt.

The billionaire financer Tuesday said the proposed combination represents higher value "for all constituencies" than the proposed deal with Spyglass.

But don't expect the MGM deal to halt Icahn's lawsuit against Lionsgate in connection with the minimajor's July debt-to-equity swap with rival shareholder Rachesky.

"Whether or not we prevail in those lawsuits, we intend to continue to support a combination of Lionsgate and MGM," Icahn said.

Lionsgate also added in its regulatory filing that there was no assurance the proposed combination with MGM will ever be consummated or that the terms of such a transaction will be as proposed by the company.

As for MGM, a studio source, speaking anonymously, said Tuesday the Lionsgate move came as a surprise.

Process insiders had been suggesting there was virtually no chance of any other suitor wresting the studio away from Spyglass. The situation was considered so watertight that one studio source said court review was expected to take only 30 days instead of the normal 60 days for a prepackaged bankruptcy.

If completed, the plan would give Spyglass a 4.7% equity stake in the studio, with the rest owned by MGM's lenders. Spyglass toppers Gary Barber and Roger Birnbaum would become co-chairmen and co-CEOs of MGM.

MGM lenders have until Oct. 22 to complete their voting on the plan.

MGM's current owners -- including Providence Equity, TPG Capital, Sony, Comcast, DLJ Merchant and Quadrangle -- would see their hold on the studio wiped out in the proposed reorganization.

Hedge funds Anchorage, Highland, Davidson Kempner and Solis acquired about

35% of MGM's publicly traded debt 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.

The studio is being run by an office of the CEO comprising turnaround specialist Stephen Cooper, CFO Bedi Singh and film topper Mary Parent. All likely would exit their posts as part of any MGM reorganization.

Etan Vlessing reported from Toronto. Carl DiOrio reported from Orlando.

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