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Billionaire Carl Icahn buys MGM debt, presses for a Lions Gate merger

30-Sep-2010 • Bond News

Billionaire investor Carl Icahn bought a significant chunk of Metro-Goldwyn-Mayer Inc.'s debt and is pushing the beleaguered film studio to merge with rival Lions Gate Entertainment Corp., said people familiar with the matter - reports the WSJ.

Mr. Icahn is Lions Gate's largest shareholder, with just under 33%.

Mr. Icahn told people close to MGM earlier this week he holds somewhere between $400 million and $500 million of MGM's debt outstanding and is continuing to build his position in the studio, they said. The purchases give Mr. Icahn about 10% of MGM's outstanding debt.

In discussions with some MGM creditors earlier this week, Mr. Icahn said he believes MGM and Lions Gate could benefit from synergies, the people said.

Mr. Icahn doesn't yet hold enough debt to block a pending deal between MGM and Spyglass Entertainment. But he could continue to buy pieces of MGM's bank obligations and try to persuade other creditors to go along with his plans.

Mr. Icahn didn't respond to a request for comment. MGM and Lions Gate declined to comment. Spyglass couldn't be reached.

MGM, saddled with roughly $4 billion in debt, has already reached a deal with Spyglass co-founders Gary Barber and Roger Birnbaum to take over management of the studio as part of a streamlined bankruptcy in coming weeks.

People close to MGM said Mr. Icahn's recent overture shouldn't disrupt that deal. MGM's creditors spent much of the summer talking to Lions Gate, but the two sides disagreed on how to value a deal, they said.

MGM is just weeks away from filing for bankruptcy protection in the deal reached with Spyglass. The studio with the roaring-lion logo plans to ask a broader group of lenders to vote on the deal as soon as next week, according to people familiar with the matter.

MGM's current plans don't preclude further talks with Lions Gate, according to people familiar with the matter, but the company is focused on the Spyglass plan. MGM recently signed a letter of intent with the Spyglass founders, entitling them to breakup fees if MGM takes a rival deal.

Hedge funds including Anchorage Advisors, Highland Capital Management and Davidson Kempner Capital Management hold about a third of MGM's debt, giving them power to block any deal.

Under MGM's current plan, creditors would forgive their debt and take over the studio. Spyglass would merge some of its older films—including "The Sixth Sense" and "Seabiscuit"—with MGM's library in exchange for a small ownership stake in the restructured studio.

Mr. Icahn often buys debt of distressed companies at late stages, hoping to control their futures. He bought roughly a third of Blockbuster Inc.'s debt just before the movie-rental chain filed for bankruptcy and clashed with other creditors before the filing, according to people familiar with the situation.

About a year ago, Mr. Icahn bought up debt of embattled lender CIT Group Inc. and tried to derail its restructuring plans. Mr. Icahn was unsuccessful and CIT exited a long-planed streamlined bankruptcy in December.

Mr. Icahn has been in a long-running fight to take control of Lions Gate. Along with Lions Gate's top executives, he held talks with MGM's biggest creditors over the summer on a so-called merger of equals but couldn't reach a deal, people familiar with the matter said.

A merger could give MGM a stronger foothold in television since Lions Gate—the studio behind hit shows such as "Weeds" and "Mad Men"—is a partner with MGM in Epix, the new premium cable movie channel that just signed a $1 billion deal with Netflix Inc.

Thanks to `Samuel 001` for the alert.

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