UPDATE 1-MGM favors current Spyglass deal, contacts lenders

* MGM supports Spyglass deal over Lions Gate’s -source

* Memo to lenders cites lack of supporting info -source

* Could take months to validate -source
(Adds details from Lions Gate’s letter)

By Sue Zeidler

LOS ANGELES, Oct 25 (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 Oct. 29 on the deal,
which would enable the company to proceed through bankruptcy
more quickly.
(Reporting by Sue Zeidler, editing by Matthew Lewis)

UPDATE 1-MGM favors current Spyglass deal, contacts lenders