Lionsgate, Icahn seek combo with MGM

Offer could disrupt plans for tie-up with Spyglass

For months, top execs at Lionsgate Entertainment have fought activist shareholder Carl Icahn and his advances to take control of their company. But now it seems there is a détente as the two sides team up to push for a merger between Lionsgate and debt-ridden MGM.

In documents filed on Monday, Lionsgate said it had sent a proposal earlier in the day to MGM management regarding a potential “business combination.” The company said it made the proposal after holding detailed discussions with Icahn. It added that in addition to Icahn, who holds a 33% stake in Lionsgate, the other top shareholders, MHR Fund Management and Capital Research, support a tie-up with MGM.

The offer comes just as MGM is moving ahead with plans for a pre-packaged bankruptcy after which the company would emerge in combination with Spyglass Entertainment, a plan that came to be following discussions this summer with MGM’s largest creditors, Anchorage Advisors and Highland Capital. Spyglass toppers Gary Barber and Roger Birnbaum would serve as the top executives of the new company. Under that scenario, lenders would exchange $4 billion in debt for a 95.3% stake; Spyglass and its affiliates would hold the remaining stake. The deadline for MGM’s more than 100 lenders to vote on the plan is Oct. 22. The plan would require more than 50% approval from debtholders.

But the Lionsgate offer, with Icahn’s support (he also owns debt in MGM,) could very well foil plans for a pre-packaged bankruptcy. This is the second attempt by Lionsgate to merge with MGM. Earlier this year, a $1.4 billion offer from Lionsgate was spurned by MGM.

The Lion would give Lionsgate, a leading mini-major best known on the feature side for Tyler Perry comedies, “Precious” and the “Saw” franchise, and in TV for shows like “Mad Men,” “Weeds” and “Nurse Jackie,” a library of 4,000 films, including the James Bond franchise.

Details of a proposed Lionsgate-MGM combination were not disclosed in the public filing. But The Los Angeles Times reported that MGM’s debtholders would have a 55% stake in the new company.

“The question then for MGM’s creditors is ‘Do I want a larger stake in company with less scale, or do I want a smaller stake in essentially what would be a mini-maxi major?,” said David Bank, an analyst at RBC Capital Markets.

“This offer is definitely worthy of consideration on the part of MGM debtholders,” said Bank. In terms of Lionsgate and Icahn playing nice now, Bank added: “Maybe we should have seen this coming, but everything in this process has been strange with Icahn.”

Executives at Lionsgate, MGM and Spyglass could not be reached Tuesday morning.