MGM sale expects to elicit half-dozen bids
But if offers are too low, a restructure could be acceptedHollywood should know better by the end of next month whether MGM will change owners or simply shift course.
An auction to elicit offers of interest in the studio is expected to yield a half-dozen or so bids by the Lion's next debt-service deadline of Jan. 31. But depending on how many of the 16 companies provided confidentiality agreements place bids -- only two have agreed to confidentiality terms so far -- the critical question is whether any of the offers is rich enough to satisfy the studio's 150 debt holders.
If bidding falls significantly below $2 billion, MGM chief Stephen Cooper might be allowed to put together a simpler restructuring of current operations in lieu of a sale.
"Steve Cooper has done a really good job of managing the banks," one industryite said. "He has a shot at getting what he wants if the bids come in too low."
Appointed as MGM chief in August, the corporate restructuring veteran signaled from the start that current owners understood lenders would be calling the shots as executives grappled with a crushing debt of almost $4 billion. But when Cooper tried to make a case for long-term loan restructuring to allow business as usual to continue indefinitely, several lenders loudly balked.
Tempers simmered down only after MGM agreed to conduct the auction to gauge the level of interest among prospective suitors.
"Pretty much everybody is behaving now," a process insider said.
MGM strategic consultant Moelis & Co. is operating an online data room to which prospective bidders gain access only after signing confidentiality agreements regarding sensitive financial information. Two companies offered such access passed on the opportunity, and several others continue to negotiate terms of their agreements.
Warner Bros., Fox and Lionsgate are considered the most serious suitors for MGM. What's less clear is whether they or others will place bids on the whole company or perhaps only select assets such as rights to the James Bond film franchise or "The Hobbit" film project.
Cherry-picking such rights would be unlikely to draw a bid even approaching $1 billion. On the other hand, an offer of $2 billion or more for the company would almost certainly be accepted by lenders.
If the high bid came in at, say, $1.8 billion, debt holders might swallow hard and accept it. But the lenders also might demand the offer come with "schmuck insurance" -- industry jargon for the right to convert debt to equity at some point in the future.
MGM is owned by a consortium of players consisting of TPG, Providence Equity, Sony and Comcast. With lenders first in line for debt recoupment in the event of a sale, the group appears likely to see only pennies on the dollar from their nearly $5 billion purchase in 2004.
Meanwhile, MGM execs continue to shepherd film projects through development, with a handful slotted for theatrical release next year. A John Cusack-toplined comedy, "Hot Tub Time Machine," is set for release March 19.