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UPDATED 1:04 p.m. Sunday, Oct. 31, 2010
MGM is poised to file in U.S. Bankruptcy Court a “prepackaged” bankruptcy reorganization plan that hands studio operating reins to Spyglass Entertainment co-toppers Gary Barber and Roger Birnbaum.
More than 100 studio lenders on Friday approved the financial reorganization plan “overwhelmingly,” MGM said.
“MGM will now move expeditiously to implement that plan, which will dramatically reduce its debt load and put the company in a strong position to execute its business strategy,” the privately held Century City studio said. “MGM is appreciative of the lenders’ support.”
In the plan — which the court will review in Chapter 11 bankruptcy proceedings — Barber and Birnbaum are named as co-CEOs of MGM, with creditors dropping claims on almost $4 billion in studio debt in exchange for a collective ownership stake in MGM of more than 95%. But eleventh-hour negotiating with MGM debtholder Carl Icahn has put in jeopardy a 4.7% stake in the studio that Spyglass would have gotten under the plans original terms.
It’s now unclear what interest Spyglass will get, and there were conflicting claims from anonymous sources during the weekend about whether more than a dozen Spyglass library titles had been removed from the deal terms. Terms of the MGM-Spyglass plan were tweaked on the insistence of Icahn, who sought two board seats for his cooperation and was given one, an MGM insider said.
Film-and-TV minimajor Lionsgate – with key backing from Icahn — had proposed an alternate MGM restructuring. Lionsgate proposed merging MGM and Lionsgate, giving studio lenders a 55% equity stake in the combined operation and Lionsgate a 45% interest.
With the Spyglass proposal approved by debtholders, there’s just the lingering question of how strenuously the oft-combative and ever-resilient Icahn will continue to press for a Lionsgate merger in coming weeks. Icahn is Lionsgate’s biggest shareholder, and sources at the minimajor suggest he will continue to battle for an eventual merger of MGM and Lionsgate.
MGM’s current owners — including Providence Equity, TPG Capital, Sony, Comcast, DLJ Merchant and Quadrangle — will see their equity positions in the studio wiped out once the bankruptcy process is completed.
For more than a year, MGM has been grappling with ways to reduce or eliminate almost $4 billion in debt. In August 2009, then-CEO Harry Sloan stepped aside to allow the appointment of turnaround specialist Stephen Cooper, with Sloan maintain his position as board chairman.
Icahn has acquired notes on at least $400 million of the MGM debt and has offered to buy up more from other creditors. His present debt holdings will be converted to a large minority stake in the studio in the bankruptcy process, but it’s unclear if that can translate into corporate clout.
The bankruptcy court’s review of the MGM-Spyglass reorganization plan is expected to take 30-60 days. Assuming Barber and Birnbaum win court approval for their operating mandate, the studio’s first two priorities will be to firm up a 50% interest in the upcoming production of a two-part movie based on J.R.R. Tolkien’s book The Hobbit and to restart development of the next James Bond film.
The Spyglass duo also must choose a distribution partner for those and other MGM pics, as they plan to shut down distribution operations at the Lion. Some suggest that Paramount — as a regular collaborator on Spyglass productions over the years — is a front-runner for the distribution rights, but others believe MGM will award distribution rights picture by picture, with co-production partner Warner Bros. in line to distribute Hobbit pics in any event.
In addition to the deadline on the Spyglass vote by lenders, MGM had been due to pay more than $450 million in long-delayed debt payments on Friday. But those payments will become moot once the studio files for bankruptcy reorganization.
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