MGM Board Meets to Consider Potential $3 Billion IPO

Bolstered by big openings for co-productions "Skyfall" and "The Hobbit," the privately-held company may go public in May or June — with, says an analyst, "the wind in its sails."

The board of Metro Goldwyn Mayer meets Monday, with a large line item on the agenda: Whether to pull the trigger on a possible $3 billion IPO this spring. That meeting should also serve as something of a celebration for the privately-held 88-year-old studio, which is about to record a gush of better-than-expected revenue from its shares in Skyfall and The Hobbit: An Unexpected Journey.

“I don’t know what management and the board are going to do but the future of the company seems exceedingly bright,” David Tawil, portfolio manager for Maglan Capital, tells The Hollywood Reporter. Maglan is a New York hedge fund that manages about $100 million, and has MGM as its single largest holding.

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“Frankly,” added Tawil, “this is as good a place as there has been in a long time in terms of IPOs, and this company has the wind in its sails.”

Since MGM produced both Skyfall and The Hobbit with partners but did not distribute them, the results took longer to migrate to their bottom line. And what a bottom line: the 24th Bond movie starring Daniel Craig and released by Sony Pictures Entertainment grossed more than $1.1 billion worldwide -- the most successful movie in the 50-year history of the James Bond franchise, and the seventh most successful theatrical release of all time. The Hobbit, released by Warner Bros.' New Line, also broke the $1 billion mark worldwide. Two other Hobbit movies, already shot, are scheduled for release around Christmas in 2013 and 2014.

This jump in revenue and profits over last year arrives after months of restructuring and cost cutting under CEO Gary Barber, who set the IPO process in motion last year. In one such instance, JP Morgan Chase and Deutsche Bank assisted MGM restructure its finances in February, with the company borrowing $500 million and paying out an older loan on better terms.

There's one big indication of how excited MGM is about its pending quarterly results.  On Friday the parent company moved up the release of its financial results to its 350 or so equity holders by several hours to about noon PST Monday. It also moved up a conference call for investors by several hours to 9:30 a.m. PST Tuesday, with wider results released later that day.

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Among MGM’s biggest current shareholders are Highland Capital Management LP, Solus Alternative Asset Management LP, Davidson Kempner Capital Management and Anchorage Capital Group LLC. Many of those equity holders initially bought MGM debt, which after a pre-packaged bankruptcy in late 2010 was converted into equity. The stock is thinly traded by a few brokers, and as of Friday was $41 per share.

If there is an IPO, the initial price is expected to be well above that, probably at least $55 per share -- valuing the company at $3 billion, according to Wall St. sources who tell THR the company may actually be worth more.

Just how much of MGM would be available is also unclear. Analysts think around 30 percent of the company that's currently privately held may not be available to trade. However, more than half should be part of the IPO, which appears more likely to be a way for insiders to cash out than for MGM to raise cash.

MGM could also sell shares acquired last July from investor Carl Icahn, which at the time represented about a quarter of its equity. MGM paid $33.50 for each of his 17.6 million shares, more than $590 million. That was a premium at the time above the stock’s $28 price, but now seems like a bargain.

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If MGM is going to go forward with the IPO -- expected to be managed by Goldman Sachs and JP Morgan Chase -- a likely time frame would be May or June. Once summer arrives, many investors are not available. And this spring MGM would also have a very good story to tell about its future, loaded with things like a new Bond movie roughly every two years, two pending Hobbit releases and films in the pipeline including G.I. Joe: Retaliation (through Paramount), Carrie (Sony’s Screen Gems), Robocop (Sony’s Columbia Pictures), Hercules (Paramount) and reboots of Ben-Hur, The Pink Panther and The Shrinking Man, among others.

There is also a revival of television production, most notably History Channel's The Vikings, a cable hit.

Veteran Wall St. analyst Harold Vogel tells THR he would not be surprised by an MGM IPO, as “right now the market is in a sweet spot” with stocks rising for 10 of the last 11 days. “The bullishness is at an extreme level,” added Vogel.

An IPO would likely value MGM like movie companies such as Lionsgate, which commands a stock price premium. It would also make the company more easily traded, so MGM would have greater ability for acquisitions -- and could even merge with another company such as Sony, Relativity Media or Lionsgate. That kind of combination of operations and libraries could bring benefits in size and scale.

The key to MGM for the IPO -- and, going forward, success as a public company -- is consistent revenue and earnings. That's no small order for entertainment companies. MGM can count on more than $300 million a year from the library of 4,000-plus movies and 10,000 TV episodes, but the new movies provide the boost to keep the stock flying high.

That really is the ultimate issue for the MGM board. Can the company maintain the high water marks being set by Skyfall and The Hobbit, and be as consistent in its financial results as James Bond is at beating evil villains?