Offers aren't binding and may not prevent bankruptcy filing
Can Leo the Lion find a savior?The answer to that long-running question will become a bit clearer today, when the first round of bids for the entire package of MGM assets is due. Expectations that MGM’s going to attract an acceptable offer — something above the $2 billion range — have been dialed down during the two months since it went up on the auction block.We find it unlikely that MGM’s creditors would cleanly agree to a sale price materially below $2 billion,” wrote analyst Anthony DiClemente of Barclays Capital in a research note this week. If creditors aren’t satisfied, he wrote, “The studio would likely file for bankruptcy and try to sell itself while in Chapter 11 proceedings.” Time Warner, Lionsgate, AT&T, Liberty Media and Summit are among the likely bidders. Speculation has focused mostly on Time Warner, since it has $5 billion in cash from the recent spinoff of its cable systems and would gain full control over “The Hobbit.” News Corp. has expressed interest, but it’s uncertain if it will make a bid due to concerns over terms of the nondisclosure agreement. About a dozen companies have signed nondisclosure agreements for a closer look at MGM’s finances. The problem for MGM is that it’s not a ‘must-have’ asset right now,” one source said. “The cash flow from the library has taken a real hit because of the decline in DVDs, and it’s probably going to be several years before that’s replenished in new media.” MGM’s library generated more than $450 million in cash in 2008, but that figure has plummeted since then. The library now generates less than $300 million a year, informed sources said. The first round of bids are nonbinding and designed to ascertain the studio’s value. MGM’s assets include the 4,000-title library, the right to make new James Bond and Pink Panther movies, the Lion logo, the United Artists operations and half ownership of the two “Hobbit” movies. Once bids are in, financial adviser Moelis & Co. will evaluate the offers and recommend whether to launch another round of bidding or to have MGM attempt to restructure its debt on its own. MGM’s fiscal year ends March 31, so management — led by turnaround specialist Stephen Cooper — will have to come up with a plan before then to spell out how the Lion’s going to continue operating. Looming over MGM is a possible bankruptcy filing if debtholders aren’t satisfied. They’ve agreed to forgive debt payments through Jan. 31, and it’s expected they’ll grant another “forbearance” extension to allow the process to play out further. In addition, MGM’s facing the repayment of its $250 million revolving credit line in early April. MGM released only one movie last year — a revamp of “Fame” that cumed just $22 million domestically — and has slotted “Hot Tub Time Machine,” “The Zookeeper” and “Red Dawn” this year and “Cabin in the Woods” in 2011. It’s a co-financer with Warner Bros. on the two “Hobbit” films, expected to begin production this summer in New Zealand with Guillermo del Toro directing. MGM carries a debt load of $3.7 billion from the Sony buyout. The Lion was taken private in 2005 by a consortium led by Sony, Providence Equity Partners, Texas Pacific Group and Comcast, with the group paying $2.85 billion and assuming $2 billion in debt as part of the purchase. Time Warner owns the pre-1985 MGM library through its 1996 buyout of Turner Broadcasting.