BREAKING NEWS! 5PM UPDATE: I’ve tracked down the source of that Lionsgate-wants-MGM report: Lionsgate Vice Chairman Michael Burns who was making the rounds of financial media outlets today, including Bloomberg and CNBC’s Fast Money. If I take all his comments together, he said: “It’s all about price… They have an enormous film library, as well as fantastic franchises such as James Bond. Of course it would be interesting to us.” When asked to put a value on the deal or whether Lionsgate would buy the entire company or just pieces of MGM, he said, “It’s too soon to know.”
4:30 PM UPDATE & WRITETHRU: Considering all the lies that MGM Studios has told me and everyone else about its financial condition, it’s amazing anyone even takes calls from that company seriously anymore. But expect to see a lot of unsettling news alerts about MGM from Deadline Hollywood and others in the next few days and weeks. Ron Grover’s Business Week article that came out while I was ill is a good wrapup of what happened after a November 4th meeting between MGM CEO Stephen Cooper and the $3.7 billion debt-hobbled film company’s 140-member creditor committee, which said no to MGM’s proposal to convert the debt into equity as part of a restructuring plan to keep the studio out of bankruptcy. (Variety‘s Peter Bart should have given him credit today in that “MGM headed to sale” article but churlishly didn’t, as usual.) But I can tell you not to believe MGM’s claims that it’s business as usual there despite the auction beginning. Because I’m receiving information that vendors with MGM are already extremely uncomfortable doing business with that studio, to the point that I’ve received word that outside workers are being told to stop what they’re doing on at least one MGM film today — and more are about to be told that for other MGM pics. That’s because vendors don’t think they’re ever going to get paid.
The fact is this run-up to the MGM auction is going to make it hard for the studio to conduct business as usual because of it, especially when intensified by the bondholders’ refusal to get realistic. As one of my film financing sources just told me by way of explanation about the committee charged with selling MGM, “They basically are saying, ‘Make an offer on anything. The company, assets, whatever.’ The bondholders aren’t going to take it unless some huge offer comes in, and I don’t believe that’s going to happen. I would be verysurprised if anything but offers that go nowhere happen.” Which means weeks and probably months of uncertainty as the process drags on. No one’s even begun to do due diligence yet, for crissakes. And all the while there’ll be the dangling question in Hollywood and on Wall Street whether the studio will stay intact or be broken up?
That is tantamount to murder in moviemaking.
I’m told that MGM’s Stephen Cooper, the specialist in restructuring companies who was brought in to clean up Harry Sloan’s mess, is preparing non-disclosure agreements for all prospective buyers and those will go out in the next few days. Meanwhile, Moelis and Co is getting a data room with information together. Houlihan Lokey, who is advising the creditors committee, is expected to work closely with Moelis and Cooper on the M&A process.
I can forsee at least a rumor a day about possible buyers. So far, the only serious potential bidders are thought to be Time Warner, Fox, Lionsgate, and Qualia Capital LLC. The price tag for keeping the studio intact could range from a lowball of $1.5B to in excess of $2B. The thinking is this: Lionsgate may want MGM and its 4,000-title film library but does not have the capital to do this deal because its market cap is only about $550 mil. So Lionsgate needs to find a partner, and it’s talking to GTCR (a Chicago-based private equity fund) to do this together. But GTCR has a reputation as a tire kicker. Meanwhile, it’s been rumored for seemingly forever that Warner Bros might be willing to pony up $2B, or bid just piecemeal for all of The Hobbit for example. And Fox, like Sony, primarily wants to get its hands on the James Bond franchise. But no bidder has a better handle right now of MGM numbers than Fox since it distributes MGM product on DVD on a worldwide basis and release theatrically internationally.
The expectation is that Warner, Fox, Lionsgate, and any other strategic would just liquidate MGM and keep the main assets. But Qualia Capital has been touted as the only potential bidder that would “save jobs” at MGM by keeping it as a going concern. Also, expect more prominent names beyond Peter Chernin’s and Terry Semel’s to surface. But I find it hard to imagine those guys writing huge checks out of their net worth to attract other potential investors/private equity firms to finance the transaction. The bids will be taken over the next two weeks or longer.
3:45 PM UPDATE: I’m receiving reports that people working on MGM studio films today have been instructed to stop work because they’ve been told “the company is being liquidated starting today”.
3:30 PM: There’s a CNBC alert that Lionsgate has expressed interest in buying MGM studios. I’m checking it out.