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MGM Creditors May Press for an Auction

Posted by: Ron Grover on November 11, 2009

It may not be long before the troubled MGM studio is forced by its creditors to seek a buyer. That’s the word coming out of a Nov. 4 meeting between MGM CEO Stephen Cooper and the debt-hobbled film company’s 140-member creditor committee. According to one source with knowledge of the meeting, the creditor group turned thumbs down on a proposal by Cooper to convert the studio’s $3.7 billion debt into equity as part of a restructuring plan to keep the studio out of bankruptcy.

Taking equity in MGM seems dicey given that the studio’s current equity owners, which include several private equity firms, Sony (SNE) and Comcast (CMCSA), have already written down their investments from their $5 billion purchase of the studio in 2004. But Cooper, who has previously been brought in to help resurrect the fortunes of Krispy Kreme and Enron, wanted the creditors to allow allow him to raise as much as $1.2 billion in fresh debt to help jumpstart MGM’s film production. That prompted the debt holders, which could push the studio into bankruptcy, to question Cooper instead about seeking a buyer. That discussion came at a Nov. 6 meeting.

The creditors have great leverage over Cooper. In October, the committee gave MGM until Dec. 15 to forgo paying interest on the studio’s debt and to keep the company out of bankruptcy court. In return, however, the creditors insisted upon a major restructuring. Now, their patience seems to be wearing thin, according to a source with knowledge of the meeting. Cooper is said to have told the creditors that it’s unlikely he can get more than $1.5 billion for the studio, which is roughly what MGM’s rights to the James Bond franchise alone might be worth. An MGM spokeswoman would not comment.

The creditors apparently are getting close to taking the haircut just to be rid of the troublesome studio, according to the source. Among those who have been mentioned as potential candidates to buy MGM are studios Warner Brothers (TWX), Fox (NWS)and Lions Gate (LGF)and private equity fund Qualia Capital, whose principals Amir Malin and Ken Schapiro are industry veterans who have a successful record at turning around wobbly entertainment companies. The studios are said to be primarily interested in getting their hands on MGM’s 4,000-title film library, the Bond franchise and MGM’s rights (along with Warner) to make the Lord of the Rings prequel The Hobbit.

Other potentially interested buyers could be former News Corp. president Peter Chernin and one-time Yahoo CEO Terry Semel, a former Warner Brothers studio chairman. Neither man could be reached for comment.



The media world continues to shapeshift as new forms arise and old assumptions erode. On this blog, Bloomberg Businessweek will provide sharp analysis and timely reports on the transformation of this constantly changing terrain.



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