2:15 PM UPDATE: I’ve just learned from film financing sources that MGM Studios bonds are “running like fucking crazy” today and are suddenly pricing up “very high” in trading. The reason? Because Carl Icahn is now in the game. My sources say Icahn is buying up bonds “like a bat out of hell. He’s in Carl mode: buy first, ask later, and then throw lawyers at it”. In terms of quantity, one best guess is in the 100s of millions of dollars — but could even be higher. (It’s impossible to know for sure because these bonds are privately traded. But, to put this in perspective, the Steering Committee of the creditors is made up of the Top 10 bondholders. The biggest holder right now has about $350M of nominal value of the bonds. The 10th person on that committee has about $75M.)
It’s thought that Icahn may want to take over all of MGM without the studio going through some kind of bankruptcy proceeding. Still, it will be very difficult for Icahn to buy a significant amount of the bonds without the price going up dramatically. Because the bonds are not heavily traded, when they are bought or sold in big numbers there occur steep increases or decreases in pricing. There are $3.7 billion of nominal value bonds out there. Given that big amount, it’s going to be extremely difficult for somebody to buy a sufficient amount of the bonds to have control over MGM’s fate. To do this before any bankruptcy proceeding could mean “he’s going to have a mess on his hands,” an insider sighed to me. His buying follows phone calls yesterday between bondholders and bankers who declared MGM “a disaster” Personally, I’m for anyone or anything that keeps the studio intact and people in their jobs.
As for Icahn’s intentions for MGM, film financing circles think he’s going after the studio because he wants it for his son. True, Icahn wanted to give one of the four Lionsgate board seats he was seeking to his 29-year-old offspring Brett. A Princeton grad like his dad, Brett worked for years under the radar as an analyst for his dad’s investment company. He has been one of 10 young traders moving the firm’s cash and its hedge fund, which the family started two years ago with $1 billion. And he serves on the board of several companies wholly or partly owned by his dadirms. He has shown more than a passing interest in the entertainment biz by raising money (with a chunk from dad) to launch a social network/film production tool that brings film creatives and movie fans together to make movies, and by founding an interactive software publishing company which is controlled by his dad.
Don’t forget that Icahn is still a huge shareholder and debtholder of Lionsgate and sought seats on that board but was rebuffed by management. That’s because the company thinks of Icahn as the proverbial Barbarian At The Gate, the guy who masquerades as a shareholder activist when he’s really a corporate raider, the father who wants Lionsgate as a showbiz future for his son. Icahn, on the other hand, sees a mismanaged mini-major not fully exploiting its potential (like that huge library) to get its share price out of the doghouse, and then led an unsuccessful tender offer for Lionsgate debt, didn’t wage a proxy fight for the September shareholders meetings, and is now nowhere with that studio. Maybe he can get somewhere with distressed MGM now.