As bidding for MGM continues, the studio gets another interest payment extension

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[Update] News Corp. has not made a formal bid for MGM, but sent a letter indicating its interest in pursuing a transaction. The Rupert Murdoch-controlled media giant proposed a plan to provide struggling MGM with a cash infusion and help in restructuring its $3.7-billion debt, said a person familiar with the matter.

That would allow MGM to continue operating as an autonomous studio. News Corp. also indicated that its preliminary valuation for MGM was approximately $1.5 billion. MGM has narrowed the second round of bidding to five parties, but News Corp., parent of 20th Century Fox movie studio, has not yet been officially notified that it is in that select group. [End Update]

For the third time in three months, Metro-Goldwyn-Mayer Inc.’s lenders have granted the financially strapped studio an extension to pay interest on its $3.7-billion debt until March 31.

The forbearance comes just as those payments were coming due on Sunday.

MGM’s 140-plus lenders voted for the forbearance so as not to hamper efforts to sell the studio, the company said in a statement. MGM also said it has begun the second phase of its auction and is conducting due diligence with ‘select parties’ who have submitted bids, a process expected to run for the next several weeks.

More than a half dozen parties, including Time Warner Inc. and independent studio Lionsgate Entertainment, have made nonbinding bids, and Company Town just learned that five of the original bidders have made it into round two. The group is believed to include Time Warner, Lionsgate and John Malone’s Liberty, although Company Town hasn’t confirmed those particulars. The second-round bidders will now be given more financial information on MGM and will have the opportunity to adjust their offers. It has not yet been determined whether the second round of bids will be binding.

So far, however, the bids have been less than the $2 billion to $2.5 billion that MGM’s investment bankers Moelis & Co., who are conducting the auction, were hoping for, according to people close to the matter. MGM’s creditors have been pressing for a sale as the debt-ridden studio teeters on the edge of bankruptcy.

-- Claudia Eller