Spyglass advances deal at MGM

Pact could value studio at $1.9 billion; Lionsgate still in talks

There's good news and bad news for MGM in its long-running quest for a financial and corporate restructuring.

Word spread Tuesday of a breakthrough in talks with Spyglass Entertainment, whose principals Gary Barber and Roger Birnbaum have been negotiating with Lion reps over how to value the respective companies in a MGM-Spyglass combination. The latest scuttlebutt, courtesy of WSJ.com, suggests that a deal would value MGM at $1.9 billion and give Spyglass principals a 4% stake in the joint operation.

The lingering bad news: It remains unclear how the new exec team would fund film production at the Century City studio.

One of the chief impediments to getting a deal with Spyglass consummated has been its inability to identify any new equity capital, a critical element if MGM is to emerge from a voluntary bankruptcy reorganization as an active film producer. Spyglass is controlled by Cerberus Capital, but owners of the hedge fund have been unwilling to ante up additional funds for MGM equity.

Meantime, a source close to Lionsgate said MGM still is negotiating with reps of the mini-major. They are discussing a plan in which Lionsgate shareholder Carl Icahn would get one or more seats on the corporate board emerging from a transaction.

"Basically, it would give Carl a bigger sandbox to play in," said a source close to Lionsgate.

Lionsgate's recent talks with MGM have centered on the important matter of how to value the respective companies -- the hurdle Spyglass seems to have overcome. But Lionsgate's abiding interest in fashioning a deal has a useful cheerleader in the Lion's den: Harry Sloan, who though relieved of CEO duties last year remains non-executive chairman of MGM.

A longtime friend of Lionsgate chief Jon Feltheimer and onetime major investor in the mini-major, Sloan served as a Lionsgate director from September 2001 through June 2005 and briefly served as board chairman in 2004. As a result of those personal and professional ties, he has huddled informally with Lionsgate execs over a possible combo with MGM and has spoken to Icahn about the matter.

Summit Entertainment is another prospective strategic partner, and a source close to that company said Summit execs believe their proposal remains in active review at MGM.

Private equity firms Anchorage, Highland, Davidson Kempner and Solis are the biggest debtholders among a group of 100-plus MGM lenders in line to take over ownership in lieu of recouping almost $4 billion in Lion debt. Current MGM owners including Providence Equity, TPG Capital, Sony, Comcast, DLJ Merchant and Quadrangle likely would see their equity positions in the studio wiped out in a restructuring.

The studio is being run by an office of the CEO comprised of turnaround specialist Stephen Cooper, CFO Bedi Singh and film topper Mary Parent. All would likely exit their posts if any of the existing proposals prevail.
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