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It’s hardly surprising that an MGM auction is starting to unfold, but it’s a measure of the quick respect established by MGM chief Stephen Cooper that he and not Lion lenders are controlling the process.
Preliminary offers to buy the debt-burdened company are expected from at least a handful of rival studios within the next few weeks. MGM likely will establish a virtual or physical “data room” for prospective bidders to review detailed financial data once suitors sign off on the non-disclosure documents currently being circulated. Financial briefing books would draw less serious expressions of interest.
If there is a surprising element in the auction mix, it’s that lenders are allowing Cooper, MGM and Lion consultant Moelis & Co. to control the process. Many among the roughly 150 lenders holding $3.7 billion in MGM debt had been pressing for a quick transfer of equity from the Lion’s current owners — a consortium involving Providence Equity, TPG Capital, Comcast and Sony– prior to any auction of the assets.
But in a series of conference calls and other dialog with the lenders group and its consultants at Houlihan Lokey, Cooper has established sufficient trust to allow the auction process to accelerate.
“He’s a professional, and he’s trying to do the right thing,” a lenders group source said. That’s not to say there haven’t been tense discussions, as Cooper tried to push a simple MGM restructuring to forestall the studio auction. Also, it’s one thing to keep the process amicable at the start, but the auction still could take on another tone if bids come in as low as many on the lenders side anticipate.
Barring a surprise bid that takes into account production infrastructure and miscellaneous goodwill value, many believe offers will be based solely on library assets and rights to the James Bond film franchise. If that proves true, it could be hard to sell the company for much more than $1.5 billion, and current equity positions would be wiped out.
Meantime, MGM has managed to secure a second reprieve regarding debt payments. The company said Friday that lenders have extended the deadline by which MGM must resume making interest payments to Jan. 31.
The lender group struck a similar agreement in October, and MGM was allowed to skip interest payments due at the end of September, October and November. Its next interest payment would have been due on Dec. 15. The new extension gives the studio some extra time to conduct the auction, though the Lion in a public statement continued to cling to the possibility of an 11th hour bailout.
“The lenders took this action in support of the company’s ongoing efforts to develop and evaluate long-term strategic alternatives to maximize value for its stakeholders,” the Century City-based company said. “MGM appreciates the continued support of its lender group for the process it is undertaking. MGM also said today it is beginning a process to explore various strategic alternatives including operating as a standalone entity, forming strategic partnerships and evaluating a potential sale of the company.”
A veteran turnaround and bankruptcy specialist, Cooper was appointed MGM chief in August. He quickly signaled that MGM’s current business model was not working and that its lenders would call the shots in deciding the Lion’s fate, and that’s prompted a reciprocal measure of respect from lenders.
“The game plan is to get some expressions of interest,” a source close to the process said. “It’s the company’s process to run, and the lenders are giving the company room to do it..”
Most connected to the process agree some sort of offers are likely from Time Warner, News Corp. and perhaps Lionsgate.
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