Lionsgate CEO Details Why Investors Should Reject MGM-Spyglass Deal

In a new SEC filing Monday, Jon Feltheimer highlights additional financial benefits of a merger with his mini-studio.

TORONTO – Lionsgate Entertainment has upped its cash flow and cost saving projections from a proposed merger with Metro-Goldwyn-Mayer as it looks to win over studio creditors eyeing a rival plan by Spyglass Entertainment.

In an October 25 letter sent to MGM creditors, and released as part of a SEC filing, the mini-studio said "recent positive developments at Lionsgate and MGM… have the potential to increase cash flow from the July projections by over $40 million in fiscal year 2011 and over $120 million over the subsequent five years."

Expanding on a previous July 13 presentation to MGM creditors with an update offer for the ailing studio backed by Carl Icahn, Lionsgate said the positive corporate developments included the $200 million Epix deal with Netflix, and the exercise of MGM’s right to opt-out of certain distribution right buyouts.

Without disclosing the precise terms of its overture to MGM creditors, Lionsgate CEO Jon Feltheimer in the letter pointed to additional upside from "global digital rights licensing, supplier advance deals, and consolidation and monetization of the channels platforms and pay television joint ventures."

Feltheimer told the MGM creditors, who are scheduled to vote October 29 on a rival combination bid led by Spyglass Entertainment, that they stood to recover more of their investment in the hobbled studio if they sided with Lionsgate.

"Importantly, these projections and actionable opportunities make this plan cash flow positive in the first fiscal year after MGM emerges from bankruptcy and have the potential to generate greater than 100% recovery rate for the MGM secured creditors on the par value of the prepetition bank debt (including swaps) on a non-discounted basis assuming a five year holding period," he wrote.

These recoveries include MGM’s 55% of equity in the combined company and the $500 million of cash/ take back debt under the current Lionsgate proposal," Feltheimer added.

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