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Icahn offers to buy MGM debt in gambit to push Lions Gate merger [updated]

October 21, 2010 | 11:00 am

Carl Icahn wants to be the star on both sides of a potential MGM-Lions Gate merger.

The billionnaire investor, already Lions Gate Entertainment's No. 1 shareholder, made a public offer on Thursday to buy at least $963 million of MGM's $4 billion worth of debt. Along with the roughly $500 million in debt he already owns, that would make Icahn one of MGM's largest creditors, saidthe group that is determining the future of the financially crippled film studio. His stake would be about 37%.

If Icahn's offer is successful, it would put him in a powerful position to approve Lions Gate's offer to merge with MGM, which he supports. Some of the latter studio's creditors, including its biggest, Anchorage Advisors, advocate an alternate plan to convert all of its debt into equity through a prepackaged bankruptcy and have the chief executives of film finance and production company Spyglass Entertainment take over.

Icahn's proposal would also likely make him the largest shareholder in a combined Lions Gate and MGM studio if that deal were to go through, handing him a stake of abut 35%.

Icahn is offering to pay 45 cents on the dollar for the debt. It's not clear how much of a premium that is over the current trading price, which is not listed publicly but has ranged from as low as 32 cents on the dollar to more than 60 cents in the last year, according to people familiar with the situation.

The offer values MGM at $1.8 billion. Lions Gate's bid values the company at the same price, while the Spyglass bankruptcy plan values the company at $1.9 billion. Backers of the Lions Gate merger say it would create more long-term value, while supporters of the Spyglass plan argue their proposal would wipe out the studio's debt and put it on a firm footing going forward. [Update, 3:11 p.m.: An earlier version of this post incorrectly said that the Lions Gate merger proposal valued MGM at $1.5 billion.]

As a condition of his offer, Icahn said anyone looking to sell to him must vote against the Spyglass plan, for which a vote is scheduled on Oct. 29.

For two weeks after Oct. 29, any lender that exercises a "put," or right to sell, and votes against the Spyglass plan, would be allowed to sell to Icahn. He would be oligated to buy at least $963 million worth of the debt on first-come, first-served basis.

The new offer, publicly announced Thursday morning, throws yet another monkey wrench into MGM's torturous, year-long attempt to escape from under a mountain of debt for which it can't pay interest and become a functioning studio again.

In his announcement, Icahn strongly criticized the Spyglass plan, labeling it a "prescription for disaster."

He also said that he wants the conditions of Lions Gate's offer to be made fully public. The deal would give Lions Gate shareholders a 45% stake in the combined company and MGM creditors the other 55%, a person familiar with the situation has said.

Icahn added that he is aware of another bid that has recently been made for MGM but not disclosed publicly.

A spokeswoman for MGM declined to comment.

-- Ben Fritz

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