MGM files for Chapter 11 bankruptcy with Spyglass plan
Metro-Goldwyn-Mayer Inc., distributor of the James Bond and Rocky movies, filed for bankruptcy in Manhattan federal court yesterday after rejecting a takeover bid by Lions Gate Entertainment Corp. and billionaire Carl Icahn, reports Business Week
Click here to read the complete MGM bankruptcy filing.
The Los Angeles-based studio, which foundered after piling on debt to go private, filed a Chapter 11 petition today in U.S. Bankruptcy Court. It has creditor support for a so-called pre- packaged plan to extinguish about $4 billion of debt and install managers from Spyglass Entertainment Group Inc., the producers of âThe Sixth Sense.â Like Tribune Co. and the former Chrysler LLC, 86-year-old MGM filed for bankruptcy after a leveraged buyout.
âBy sharply reducing MGMâs debt load and providing access to new capital, the proposed plan of reorganization achieves these goalsâ of improving the companyâs prospects, said Co- Chief Executive Officer Stephen Cooper, who led Enron Corp. through its bankruptcy.
Losers in the bankruptcy may include the 2005 buyout group, which retains most of MGMâs existing stock. Tokyo-based Sony Corp. has a 14 percent stake; the Texas-based private equity firm TPG Capital, run by David Bonderman, has 23 percent; Providence Equity Partners Inc. has 34 percent; Comcast Corp. has 21 percent, and Credit Suisse Group AG affiliate DLJ Merchant Banking Partners, has 8 percent, according to a court filing.
Existing equity holders typically get little or nothing in a bankruptcy. The investment group in 2004 said it would put up $1.6 billion in equity financing to buy MGM and take on about $2 billion in debt.
MGM said its plan may be confirmed by the court within 30 days. After the bankruptcy, it aims to raise $500 million for operations, including for new movies and television series, it said.
Secured creditors âoverwhelminglyâ backed the Spyglass plan, which would swap their debt for most of the stock in a streamlined studio, MGM said in its statement.
In a competing bid, Lions Gate, based in Vancouver, offered about $1.7 billion in stock and debt to MGM creditors, representing a 55 percent stake in the combined company.
To win more MGM creditors, Icahn, who is Lions Gateâs largest shareholder and owns about 10 percent of MGMâs debt, offered 53 cents on the dollar for senior MGM loans, or about 18 percent more than the 45 cents the debt fetched in the market before Lions Gateâs Oct. 12 bid.
Icahn, who separately mounted a hostile takeover of Lions Gate, was sued by the company on Oct. 29 for allegedly âplottingâ a merger of Lions Gate with MGM that would boost the value of his holdings in the two companies. He denied the allegations.
Today, Icahn said in an e-mailed statement he reached an agreement with Metro-Goldwyn-Mayer Inc. and the lender subcommittee to support MGM in its prepackaged bankruptcy. He will have to right to elect a director to MGMâs board after the bankruptcy, according to his statement.
âI am pleased that we were able to obtain an agreement to make changes to the MGM prepackaged plan that allows me to support it and enables the company to avoid a potentially costly and disruptive bankruptcy process,â he said.
With MGM now in bankruptcy court with creditor backing for its own plan, any rivals will have to convince a judge as well as creditors that their proposals for MGM are better than the bankrupt companyâs own plan.
MGM said it has enough cash on hand to fund ânormal business operationsâ throughout its bankruptcy, which began with a filing by a New York affiliate, Orion TV Productions Inc. Some 160 units of the company will file Chapter 11 cases in Manhattan, MGM said.
After the bankruptcy, MGMâs top managers will be Gary Barber and Roger Birnbaum, who run Spyglass and produced the supernatural thriller âThe Sixth Sense,â the company has said.
MGM, whose 4,000-title film and television library includes âThe Wizard of Ozâ and âGone With the Wind,â has a co- production deal with Time Warner Inc.âs Warner Bros. on a planned movie based on J.R.R. Tolkienâs novel âThe Hobbit.â
The studio was hobbled with debt in the 2005 buyout. Revenue fell as new technology cut into DVD sales, the most profitable part of Hollywood studiosâ business, according to Adams Media Research.
Industry DVD sales dropped about 10 percent to $13 billion in 2009, according to the research firm in Monterey, California. In May 2009, MGM hired investment bank Moelis & Co. to help restructure its debt.
MGM Chairman Harry Sloan stepped down as chief executive officer in August 2009, as MGM created an office of the CEO with film head Mary Parent, Chief Financial Officer Bedi Singh and Stephen Cooper, a turnaround specialist. Sloan remained as chairman.
After inviting takeover bids, MGM said it never got an offer high enough at an auction where bidders included Time Warner, which bid about $1.5 billion, and News Corp., according to people familiar with the matter.
Along with Sony and TPG, MGMâs buyout group included Quadrangle Group LLC, according to the studioâs website.
The New York private equity firm Cerberus Capital Management LP has an investment in Los Angeles-based Spyglass.
MGMâs largest unsecured creditors are NBC Universal Inc., with $34.6 million owed; Showtime Networks Inc., with a $25.5 million claim, and Rainbow Media Holdings, with $22.9 million, according to a court filing. They also may get little in the reorganization; most of MGMâs stock in the new company will go to secured lenders, MGM said today.
MGM was controlled by billionaire Kirk Kerkorian at the time of the 2005 buyout, which was his third sale of the studio. He first sold it to Ted Turner in 1986 and then bought it back, leaving the pre-1948 library with Turner, who used it to create movie-oriented cable networks that included Turner Classic Movies, now owned by Time Warner.
Kerkorian later sold the part of MGM he retained to Italian financier Giancarlo Parretti, who lost it to the French bank Credit Lyonnais SA after defaulting on loans used to buy the studio.
With studio executive Frank Mancuso, Kerkorian bought MGM a third time in 1996 for $1.3 billion in cash.
MGMâs filings were made by New York-based Skadden Arps Slate Meagher & Flom LLP, hired under a retainer to help the company with its bankruptcy.
The case is In re MGM Holdings II Inc., 10-15777, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
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