Icahn pushing for MGM-Lionsgate merger

Spyglass in final talks for deal as other options crystallize

For months, Carl Icahn quietly has accumulated MGM debt through secondary markets, and it appears those efforts have reached critical mass.

Having previously acquired an almost 33% stake in Lionsgate, Icahn has decided to help the film and TV mini-major push for a merger with financially wracked MGM, sources said Thursday.

Execs and lenders of the Century City studio are in final negotiations for a financial restructuring that would bring Spyglass Entertainment on board as an operating partner. But other options seem to be crystallizing at the eleventh hour.

This week, a U.S. source said one-time tire-kicker Sahara India Pariwar is working on an MGM bid of as much as $2 billion. Time Warner's bid of $1.5 billion topped a failed MGM auction last year, but it's considered unlikely the Warner Bros. parent will up that offer substantially.

The Wall Street Journal reported Thursday that Icahn has confided to unnamed persons that he now holds more than $400 million of MGM's debt, or roughly 10%. That's not enough to give him veto of the Spyglass deal, but it gets Icahn into the upper echelon of a more-than-100-entity lenders group that must vote to approve or reject a sale or reorganization proposal.

A green light would be needed from 51% of individual lenders and by lenders representing two-thirds of MGM's total debt. The latter provision gives larger debtholders an effective veto.

Private-equity firms Anchorage, Highland, Davidson Kempner and Solis are the biggest debtholders after accumulating at least 35% of the Lion's publicly traded debt. Icahn's debt holdings had been uncertain until now.

Icahn remains at odds with management at Lionsgate, where he is the largest shareholder. But the appeal of a merger with Lionsgate has the parties reading from the same hymnal for a change.

Operational synergies of an MGM-Lionsgate include a bigger stake in Epix, the fledgling premium cable channel launched by MGM, Lionsgate and Paramount.