MGM favors current Spyglass deal, contacts lenders

By Sue Zeidler

LOS ANGELES (BestGrowthStock) – Indebted studio Metro-Goldwyn-Mayer Inc favors a plan to file for bankruptcy and link up with Spyglass Entertainment over a proposed merger with Lions Gate Entertainment Corp (LGF.N: ), a source familiar with the matter said on Monday.

The source said MGM, home to the James Bond and Pink Panther films, sent a memo to lenders on Monday saying the Lions Gate proposal lacks a tremendous amount of due diligence and data to support claims of savings and cash flow.

MGM declined comment. But the memo was sent to lenders on the day Lions Gate said in a letter to MGM that a combination of the two studios would generate $68 million more in cost savings and $120 million more in cash flow over five years than had previously been estimated.

The source told Reuters many of the Lions Gate proposal’s assumptions and governance issues would require months to evaluate and validate.

In the letter, filed with the Securities and Exchange Commission, Lions Gate said under its proposal the combined company has “the potential to generate greater than 100 percent recovery rate for the MGM secured creditors.”

Lions Gate’s letter follows after billionaire Carl Icahn — who has large positions in both studios — stepped up overtures to MGM’s creditors. Last week, Icahn offered to buy up to $963 million in senior debt from creditors willing to vote down MGM’s proposed deals with Spyglass.

Icahn said his offer is good for holders of MGM’s senior secured loans because it offers the option to sell their loans to him at 45 cents on the dollar.

MGM, saddled with more than $4 billion in debt, had intended to move ahead with a prepackaged plan under which Spyglass would contribute certain assets in return for an equity stake of roughly 5 percent.

Senior debtholders are due to vote by October 29 on the deal, which would enable the company to proceed through bankruptcy more quickly.

(Reporting by Sue Zeidler, editing by Matthew Lewis)

MGM favors current Spyglass deal, contacts lenders