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Lions Gate makes merger presentation to MGM creditors

July 13, 2010 |  5:13 pm

LionsMGM The lions are in the room together.

Independent studio Lions Gate Entertainment's chief executive, Jon Feltheimer, and vice chairman, Michael Burns, on Tuesday made a formal merger presentation to the steering committee of creditors overseeing the future of struggling studio Metro-Goldwyn-Mayer, people familiar with the situation said.

The meeting marks a major step forward for the two sides since they started to engage in merger talks last month.

The meeting comes just days after Lions Gate agreed to a 10-day detente with activist investor Carl Icahn, who owns 37.3% of the movie and television studio and launched a hostile takeover of the company. The parties agreed that during the truce they would jointly explore potential mergers and acquisitions.

Last year, Icahn and Lions Gate discussed the possibility of making a play for MGM. Since that time, tensions between the two parties have grown considerably. When Lions Gate made a $1.4-billion bid to buy MGM earlier this year, Icahn publicly criticized the idea of such a deal and Lions Gate subsequently withdrew its offer.

Icahn's takeover attempt prompted Lions Gate management in June to approach MGM about a possible merger that would somewhat dilute the investor's stake and transform the company. Still, Lions Gate knew it could not pull off any merger or acquisition deal without Icahn's blessing given his big stake in the company, so the two called a ceasefire that ends July 19.

Any merger would be complicated by the fact that Lions Gate can't afford to add substantially to its $550 million in debt, nor could it issue a significant amount of new stock that would dilute Icahn's stake beyond the investor's comfort level.

MGM, meanwhile, has nearly $4 billion worth of debt that must be addressed as part of any deal. On Wednesday, MGM is expected to announce that it received a sixth forbearance from lenders on interest payments that it can't afford.

The studio's largest debt holders, which include Anchorage Advisors, Highland Capital Management, and Davidson Kempner Capital Management, are on the steering committee that is leading the decision-making process on MGM's fate. The debt is expected to be transformed into equity as part of a prepackaged bankruptcy proceeding. But it remains to be seen whether that will lead to a merger with MGM or other scenarios under consideration, such as having the top executives of Spyglass Entertainment run a slimmed-down MGM or cutting a similar deal with "Twilight" studio Summit Entertainment.

-- Claudia Eller and Ben Fritz

Related:

Lions Gate and Icahn sign 10-day truce to work on deals

As Icahn gains ownership, Lions Gate serves up another poison pill

Carl Icahn now owns 34% of Lions Gate [updated: ups stake to 38%]

Lions Gate talking to MGM about possible merger of lions

Carl Icahn and Lions Gate now poised for proxy war

Carl Icahn owns nearly 32% of Lions Gate stock as tender closes

Mark Cuban passes Lions Gate stock to Carl Icahn 

Lions Gate stars in its own corporate drama
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