UPDATED 3:48 PM with more details: More information is coming to the surface about what caused MGM chairman and CEO Gary Barber to be ousted by MGM Holdings Inc yesterday. Sources with knowledge of the situation said it really came down to fighting about the direction of the company and a difference of opinion between Kevin Ulrich, chairman of the board of directors, and Barber. Ulrich did not want a sale and Barber thought it would be good to entertain offers for one.
“Barber stood up to the board to defend his strategy of how to monetize the company going forward, and Ulrich didn’t like the idea and then convinced the other board members,” one source said. “I know Gary did not see this coming. In fact, none of us did.” In fact, the phrases “side-swiped” was heard from several people in describing what happened to Barber.
Added another head of company who had done business with MGM: “Ulrich said the company is not for sale, but this is a head-scratcher. Why would they sign Barber to a five-year deal? They knew what he was doing and where he was going. This is a matter of a hedge fund manager thinking he knows best.” Apparently, Ulrich has been interested in finding other management for MGM.
According to a statement released by a publicist for MGM Holdings at 5:43 PM, “The decision to make a change was not driven by Mr. Ulrich. It was a unanimous decision of the non-executive directors on the Board.”
Ulrich’s New York investment firm Anchorage Capital Group is the largest owner of MGM with a 34% stake, which came when their debt was turned to equity during the 2010 bankruptcy. He manages a hedge fund worth about $16 billion-plus.
We also understand Ulrich has aspirations to be more hands-on in the running of MGM Holdings. One of the things Barber and Ulrich disagreed on, we are told, was how to best leverage Epix, the premium network it acquired from its partners Lionsgate and Viacom last year for $1.2 billion. Barber was all for an OTT direct-to-consumer model in a sequenced fashion, but another source said it had nothing to do with that, as the stock was at an all-time high under Barber, so the direction in which the company was headed was considered a good one.
“He (Barber) did a tremendous job of reorganizing the company and bringing it back from the edge,” said one top exec at a competing studio.
MGM’s most recent EBITDA was $305M, mainly because the percentage of Epix it already owned was valued higher than it actually is, based on its valuation rising based on what MGM paid to buy out its partners in the $1.2 billion Epix buy-up. That escalated the value of that EBITDA by more than $100M (which is how they got to that $305M figure). The time to sell MGM was considered ripe.
Ulrich saw an opportunity for MGM to remake itself into a digital powerhouse by renaming Epix with the MGM brand and making it a subscription streaming service that could line up favorably along the likes of Netflix, Amazon, Disney’s new service, Hulu and others that come along. The idea would be to include the upcoming James Bond film’s pay window as part of this (the film, now expected to be directed by Danny Boyle, has its domestic rights tethered to Annapurna, but hasn’t yet made the deal for overseas and ancillary territories). The drawback: MGM reaps cash flow from the licensing of its film and TV titles to other services, and in this scenario it would forego those fees to build its own OTT platform. How many of these streaming services will consumers embrace, with their monthly subscription fees? It will be a big gamble for MGM to embrace such a strategy, but sources said it is under serious consideration.
As for Barber, there is no shortage of seasoned execs who’ve worked with and squared off against the vet exec who are still surprised by his abrupt ouster.
“Gary Barber is a great piece of manpower who understands the bigger picture,” said one source who had done business with MGM. “Here’s the issue now: I’m really not sure MGM has that anymore.”
UPDATED, 8:57 PM after 7:22 PM post: Gary Barber was asked to leave as Chairman/CEO of MGM and MGM Holdings Inc. Its Board of Directors then immediately initiated what they are calling “a CEO transition” to begin looking for a new chief executive officer. Barber has served at the company for the past eight years, leading its growth, and still had four years left on his contract.
We were told by one exec that MGM Holdings ousted Barber over disagreements on strategy about the future direction of the company. In no uncertain terms, Barber was asked to leave the company, a move that sent has employees reeling. Some, we were told, were crying. “It’s been incredibly hard,” said one employee. “We love him.” Another called Barber’s sudden departure “gut-wrenching.”
Late tonight, Deadline was finally able to get a hold of Barber, who would not comment on his ouster except to say: “I am very proud of what I accomplished in taking the company from the depth of bankruptcies to one of the greatest turnarounds in corporate history. I wish all my colleagues well.” Yes, he took the high road.
The sudden exit came as MGM has been in the midst of picking a director for the next Bond film, which will star Daniel Craig and is expected out in November 2019. (Danny Boyle will direct the film if MGM and Eon agree to the version he hatched and has his Trainspotting scribe John Hodge writing). It was Barber’s relationship with Mark Burnett and Roma Downey that gave MGM a stake in two of the most successful shows on TV — The Voice (in its 14th cycle) and Survivor (on the air since 2000). It also put them in business with Burnett and Downey for faith-based fare. In addition, MGM launched The Handmaid’s Tale, which swept the Emmys last year, winning eight including for Outstanding Drama Series.
Under Barber, MGM also completed an acquisition of Viacom and Lionsgate’s combined 80.9% interest in Epix to give the company full control over the premium network company. In doing so, it did raise its debt load, but it showed a commitment to original programming. Their TV side has often boosted its earning when films fall flat.
It will be interesting to see how Wall Street will react in the morning. MGM said it will provide a business update on its scheduled Q4 2017 earnings call on March 28.
The press release about Barber’s exit was put out on business wires late today with no explanation given, and employees said they are “still trying to process this” as it happened so unexpectedly. The corporate and studio publicists then ducked and covered the remainder of the night in one of the biggest displays of unprofessional behavior this reporter has seen since the Sony/Heidi Fleiss days when everyone decided to stick their heads in the sand and pretend it wasn’t happening. We all remember how all that turned out.
They forget that, like former MGM chairman Frank Mancuso once told me, Hollywood is like a small coal mining town and there are no secrets — everyone knows everyone else’s business or at least eventually will. So dumping this late at night and not talking, thinking it will mitigate the impact, further reporting or the real story getting out is really kind of … well, stupid.
All it did was give way to rumors about a possible sale or merger of MGM and other ugly rumors about Barber. These publicists — Sard Vebinnen’s Cassandra Bujarski and Dan Goldstein, Kristin Cotich from MGM and Clare Anne Darragh from Frank Publicity — would neither get on the phone nor return emails to answer questions about anything. It took them 46 minutes after we asked them about the rumors about MGM and Barber to issue the statement that all rumors “were completely false.” 46 minutes.
The press release noted that MGM Holdings said the board has formed an Office of the CEO to oversee the company’s day-to-day operations during this period, which will report directly to the board and include a group of divisional heads and senior executives.
They said it will have active support of the board, which is composed of Ann Mather, formerly of Pixar, Paramount Pictures and Disney; Fredric Reynolds, formerly of CBS and Viacom; Nancy Tellem, formerly of Microsoft/Xbox Studios and CBS; David Krane, CEO of Google Ventures; and James Dondero, CEO of Highland Capital Management.
“Over the past eight years, MGM has successfully built a world class company and talented team,” said Kevin Ulrich, Chairman of the Board of Directors in a statement. “With this transformation complete, MGM is uniquely positioned for exceptional future growth in the evolving entertainment landscape. Now is the right time to enable the next generation of leadership who can help drive the creativity, collaboration and partnership needed to continue the Company’s positive trajectory. Looking forward, we are committed to empowering our team to take charge, innovate and execute on the promising opportunities in front of MGM.”
Ulrich continued, “On behalf of MGM’s Board of Directors, I would like to thank Gary for his contributions and for leading MGM with the highest integrity over the last eight years. Gary has played a key role in the development and execution of our strategic plan, which laid an important foundation for MGM.”