MGM Files for Chapter 11 Bankruptcy, Reaches Agreement With Carl Icahn
MGM on Wednesday filed in U.S. Bankruptcy Court in New York its financial-reorganization plan naming Spyglass Entertainment co-toppers Gary Barber and Roger Birnbaum as co-CEOs of the Century City studio.
The “prepackaged” Chapter 11 bankruptcy plan was approved last week by more than 100 MGM lenders, who agreed to swap $4 billion in debt holdings for a collective 99% stake in the Century City studio. The final terms contain certain changes demanded by investor Carl Icahn, a big MGM debtholder.
Court review of the plan is expected to take 30 days. Once approved, the studio restructuring will wipe out ownership positions by Providence Equity, TPG Capital, Sony, Comcast, DLJ Merchant and Quadrangle.
Icahn will end up with a sizable stake once his $400 million-plus in Lion debt is converted to equity. He also had been backing a rival MGM restructuring plan involving a proposed merger of MGM and Lionsgate, in which he also is a major investor with a stake of abut 30%.
Though the proposal has been tabled for now, some believe Icahn will still continue to press for the merger. For now, he has won concessions including the removal of 15 Spyglass film library titles that had been included in the restructuring under the original terms. Those titles include Seabiscuit and The Sixth Sense.
“He wasn’t comfortable with the valuation on the Spyglass library,” an insider explained.
As a result, Spyglass will get an equity stake of less than 1% in MGM rather than the near 5% stake originally stipulated. Icahn will get a seat on the MGM nine-person board, along with Barber and Birnbaum.
The Spyglass duo will get hefty stock options in the privately held studio. The prospect of that compensation, in addition to their corporate salaries, has Barber and Birnbaum happy for now despite the removal of the Spyglass library from the transaction, a well-placed source said.
“For many months, we have been working with our lenders to explore the strategic options available to MGM to improve MGM’s financial position and maximize the company’s value,” said MGM chief Steve Cooper, the turnaround specialist hired in August 2009 after then CEO Harry Sloan stepped down. “By sharply reducing MGM’s debt load and providing access to new capital, the proposed plan of reorganization achieves these goals. Having received approval through our recently completed solicitation process, we are pleased that the lenders support MGM’s approach. We now look forward to quickly emerging from Chapter 11.”
In a joint statement, Barber and Birnbaum said: “MGM is emerging from one of the most challenging periods of its storied history. We are honored and inspired at the prospect of leading one of Hollywood’s most iconic studios into its next generation of unforgettable filmmaking, global television production and distribution and aggressively pursuing, developing and exploiting new digital entertainment platforms.”
Icahn also issued a statement. “I am pleased that we were able to obtain an agreement to make changes to the MGM prepackaged plan that allows me to support it and enables the company to avoid a potentially costly and disruptive bankruptcy process,” he said.
In addition to the removal of Spyglass’ library assets, the changes in terms of the MGM restructuring ensure that the studio “will have a strong corporate governance structure including the ability of stockholders to call special meetings,” he added
“There [also] will be restrictions on poison pills and staggered boards,” Icahn noted.
Along with the more than 100 secured debtholders who voted to approve the plan, a number of unsecured creditors also are noted in the bankruptcy filing, though it’s unclear whether they stand to recoup on their debts.
Those include NBC Universal, which is owed $34 million; Showtime Networks, owed $25.5 million; and Rainbow Media, $22.9 million.
Once MGM mops up its red ink, the Lion intends to solicit a $500 million lending package to fund its operations moving forward. Barring a Lionsgate merger or other dramatic new developments, MGM is expected to slim its film-production operations and shut theatrical distribution.
But it will need quick cash to maintain a hold on its 50% stake on The Hobbit movie co-production with Warner Bros. and will seek to resurrect development of the next James Bond film.