Billionaire's debt proposal seeks to block Spyglass takeover

Amping up the stakes for MGM, Carl Icahn has made a second offer to MGM debtholders designed to block a proposed pre-packaged bankruptcy deal that would leave Spyglass Entertainment in charge of the Lion.

Icahn disclosed Tuesday an offer to buy $1.6 billion in secured loans of the debt-laden studio at 53¢ per $1 principal amount. MGM had no immediate comment.

Move came less than a week after Icahn offered to buy some $963 million in debt by guaranteeing to debtholders that they will receive at least 45¢ on the dollar as long as they agree to vote against the proposed merger with Spyglass. Icahn is supporting a rival plan by Lionsgate, in which he owns 33%, to merge MGM with that mini-major.

The voting deadline on the Spyglass proposal — and on Icahn’s latest offer — is Friday. The current trading price of MGM debt is about 45¢ on the dollar.

Icahn also said his offer will be valid only if he receives tenders for $1.6 billion in MGM debt — which would give him 51% when combined with his current debt holding — and the Spyglass plan is rejected. He added that he won’t buy more than $1.6 billion in MGM debt.

The Spyglass plan, which has been supported by some of MGM’s creditors, would place the studio into a pre-packaged bankruptcy, wipe out the equity and leave debt owners with a 95% stake, with the remaining 5% going to Spyglass.

The Lionsgate proposal would combine the two studios and give MGM debtholders a 55% stake.

Spyglass toppers Gary Barber and Roger Birnbaum have refused to comment on the latest series of offers for MGM. Under the Spyglass plan, Barber and Birnbaum would manage the merged company upon exiting bankruptcy, a process expected to take about 30 days once the filing is made. Lionsgate underscored in a regulatory filing Monday that it could reduce costs by $100 million and boost cash flow by $400 million over the next six years if the debtholders would instead approve its own merger with the storied studio (Daily Variety, Oct. 26).

Lionsgate said by joining forces with MGM, it could save $100 million a year from a combined operation, including trimming the workforce by 176 to 699. Under its plan, unveiled Oct. 12, Lionsgate said topper Jon Feltheimer would serve as CEO and “the best of the breed” between Lionsgate and MGM would fill out other top exec spots.

The company estimated that the resulting library of more than 20,000 titles from a merger would generate $590 million in cash flow by 2016. Lionsgate also said it would put out 16 or so films a year, including four tentpoles.

A combined Lionsgate/MGM would have the potential to reach 300 million homes worldwide through such domestic and international services as Epix, This TV, MGM HD, Tiger Gate and LAPTV. Another potential opportunity would be to sell an “all-media rights license” in such countries as China, India, France and Germany.

But a source close to the situation indicated Tuesday that some MGM creditors have concerns about details and execution risks of the Lionsgate proposal — such as whether there’s an acceptable governance plan and assurances that both Icahn and Mark Rachesky, who owns 29% of Lionsgate, are onboard.

In addition, the source indicated that obtaining the required specifics about the Lionsgate plan would be a lengthy process that would hinder MGM’s ability to enter and emerge from bankruptcy in a timely manner.

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