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MGM sets deadline for updated bids

Six companies invited to participate in second-round bidding

As many as a half-dozen companies are expected to place updated offers for MGM by March 19, the newly set deadline on second-round bidding for the beleaguered Lion.

That's only because six companies were invited to the latest round of due diligence, including management presentations of MGM financial data. It's an open question how many will be inspired to put their money where their curiosity is.

Those still involved appear disheartened by the data they are seeing.

"The deeper you dig, the more bad news you get," a participant in the due diligence said. "The numbers just aren't getting any better."

The chief problem involves MGM's large but heavily exploited film library, which hasn't been replenished with attractive new titles in years.

Those invited to the binding round of bidding include Time Warner, Lionsgate, Liberty Media, Summit Entertainment, Access Industries and Elliott Management. MGM's consultant in the bidding process, Moelis & Co., is eager to pry an acceptable offer from one or more parties as the Lion has a big interest payment to lenders coming due March 31 and the studio's credit facility expires April 8.

Time Warner might be in the best position to make a compelling offer. The Lion film library would fit well with its Warner Bros. catalog, which boasts pre-1986 MGM titles originally acquired by Ted Turner.

Lionsgate also boasts good operational synergies with MGM. But if it bids at all in the second round, the mini-major is unlikely to offer as much as in the first, nonbinding round, when Lionsgate placed a $1.5 billion bid for the Lion.

Liberty isn't considered one of the more aggressive in the mix, as its offer amounts to little more than merging its Overture Films with MGM as a means of boosting value. The offer hinges on MGM's undertaking a simple restructuring of debt rather than outright sale, in which case most MGM equity would be transferred from a current ownership consortium to holders of $3.7 billion in MGM debt.

There's a gathering sense that a debt restructuring is more likely than a sale of the studio. In anticipation of such a possibility, lenders have been busily consolidating their positions from among an initial group of more than 140 MGM lenders.

One source suggested that as much as 51% of the Lion's debt now is held by just eight parties.

Many familiar with Moelis' bidding process predict that second-round offers won't be much more than $1.5 billion. An earlier round of nonbinding offers topped out at roughly $1.7 billion.

If that proves the case, it would be unlikely that lenders would agree to a sale and instead begin negotiations of a prepackaged bankruptcy designed to shift equity to debt holders.

Elsewhere among prospective suitors, Summit's interest in MGM appears dim at best, though it was invited to the next round of bidding. Access, a diversified global company controlled by industrialist Len Blavatnik, could be hampered by a lack of strategic upside from any MGM purchase; ditto Elliott.

MGM's current owners include Providence Equity, TPG Capital, Sony, Comcast, DLJ Merchant and Quadrangle.