Some of MGM’s creditors are wary of Carl Icahn’s aggressive offer Thursday to buy up more MGM debt as a way to control the outcome of a proposed merger for the Lion, according to sources close to the creditors.
Icahn is offering 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 a proposed merger with Spyglass Entertainment. The billionaire investor is strongly supporting a rival plan by Lionsgate, where he is a major shareholder, to merge with the storied but financially troubled studio.
Clearly, the guarantee would eliminate a lot of the potential risk to debtholders in MGM, whose future is still uncertain. But some creditors are wary of Icahn’s tactics and suspicious of his motives. Icahn already owns a substantial amount of MGM’s $4 billion in debt. An MGM spokeswoman declined comment.
Icahn’s offer comes days before an Oct. 29 deadline for MGM creditors to vote on a plan to put Lion into a pre-packaged bankruptcy, after which it would emerge debt-free and partnered with Spyglass.
“We should not allow ourselves to be railroaded into the Spyglass plan,” Icahn said in a prepared statement Thursday. He called the Spyglass plan a “prescription for disaster.” Spyglass toppers Gary Barber and Roger Birnbaum could not be reached for comment Thursday.
Under Icahn’s favored plan, MGM would merge with Lionsgate, and the Lion’s debtholders would end up with a 55% stake in the merged company. Under that plan, the company would be valued at $1.8 billion. Icahn is the largest shareholder in Lionsgate with a 33% stake.
“It’s a lousy offer, and I am not sure anybody wants to be involved with Icahn and that mess at Lions-gate,” said a source close to the creditors.
The source was referring to Icahn’s decision to sue Lionsgate’s second-largest shareholder, Mark Rachesky, while also acting as his ally in the bid for MGM. Icahn is challenging a debt-for-equity swap put in place over the summer that boosted Rachesky’s MHR Fund Management’s position and diluted his own stake.
Even though Lionsgate distributed a press release Oct. 12 highlighting its offer for MGM, Icahn said Thursday: “It is interesting to note that Lionsgate has made an offer but their request to put it out publicly has been refused. It has also come to my attention that at least one other offer has been made which has not been made public by MGM or the MGM creditors committee.” A source close to Icahn would not identify the third bidder.
Some of the largest creditors still appear to favor a tie-up with Spyglass, a plan under which Barber and Birnbaum would manage the merged company upon exiting bankruptcy. That process is expected to take about 30 days once the filing’s made. A spokesman for the company could not be reached for comment.