MGM, Miramax ponder second choices

Extension of interest payment gives MGM some time

With auctions for MGM and Miramax proving more slog than jog, two un¬expected outcomes suddenly seem possible: MGM could be sold in parts, and Disney might decide to hold on to its specialty unit.

A fourth extension of a big interest payment gives Lion keepers on both sides of a $3.7 billion mountain of debt until mid-May to figure out how to rise above the problem. A daylong meeting of a lenders steering committee Friday addressed the two main options -- selling the studio or fashioning a bankruptcy reorganization -- but a third path could prove most lucrative: holding an a la carte auction for the studio.

Housed in leased space in a Century City officer tower, MGM no longer has a studio lot to sell. Primarily, the Lion comprises a 4,000-title film library and an executive corps in charge of exploiting the catalog over various distribution platforms; movie development has all but ground to a halt because of the studio's money woes.

But the library doesn't have to be sold to any one party, and there is gathering interest in chopping off the James Bond catalog -- along with 007 moviemaking rights -- for sale to one bidder, while others are allowed to bid on the rest of the library and other studio assets. Parent companies to Warner Bros., Fox and Sony would be among the most eager bidders for Bond rights.

Time Warner was the high bidder during the most recent round of bidding for MGM, at $1.5 billion, and it's unlikely the Warners parent will be moved to raise the offer substantially. But TW and Warners would be interested in bidding on Bond rights; ditto the balance of film rights to "The Hobbit," which Warners shares with the Lion.

Still, if MGM is to be priced a la carte, it's likely the idea would coalesce on the lenders side. Studio management remains committed to a debt restructuring, and MGM execs making presentations at the lenders meeting focused primarily on how much would be needed to maintain current operations.

"Give us $500 million and we can keep film production going," they said.

Qualia Capital and Access Industries, a pair of New York investment portfolios, have offered to do just that, and News Corp. has an offer on the table with MGM to invest $250 million in equity capital.

But the chief aim of continued film production would be to raise the market value of the studio, something only a string of hit movies can provide. So simply keeping the lights on at the studio and succeeding in the marketplace are distinctly different matters.

Those participating in the two rounds of bidding for MGM have been asked to maintain "flexible" postures in the days ahead. But working against a new debt-payment deadline of May 14, the Lion and consultant Moelis & Co. seem to be feeling their way through discussions with lenders and others, a bidding insider groused Monday.

"This thing's being run on a day-to-day basis," the source said. "It's been a pretty reactive process."

It's an observation that echoes sentiments voiced by tose involved in Disney's months-long auction of Miramax.

Setting a target price of $700 million, Disney has run the auction internally. But with another stretched deadline for bidding on the 700-title film library expiring Monday with little new interest apparent, it's become an open question whether the Mouse House will get a single offer sufficiently lucrative to bother selling Miramax.

"This thing is still limping along, and it's limping along because people are thinking that if you hang around long enough, you might get it at a cheap price," said one source. "People in the M&A business are used to getting things at a discounted price. But the real problem is that there's no forward-going operation at Miramax. It's just a library sale."

A further problem involves the Miramax library itself, which one party labeled "filmmaker-driven."

"What are you going to with the rights to 'Pulp Fiction 2'? " the industryite asked rhetorically. "Who's going to make that?"

Miramax founders Harvey and Bob Weinstein would love to. But so far, nobody seems willing to back their interest with sufficient financial muscle.

Entertainment investors Tom and Alec Gores -- in consultation with a third sibling, Paradigm Agency chairman Sam Gores -- also have been kicking tires at Miramax. But despite their interest in the library, the Gores are opposed to bidding anywhere near what Disney has been seeking.

Meanwhile, the Miramax process might be suffering from its sharing the auction limelight with MGM.

"With MGM, you're getting distressed-price bidding, and MGM is setting a valuation multiple in the marketplace for Miramax bidders," Arpeggio Partners principal David Davis said.