Spyglass plan approved by MGM creditors [updated]
Metro-Goldwyn-Mayer creditors have approved a plan to reorganize the company in a prepackaged bankruptcy and bring in the chief executives of Spyglass Entertainment to run the studio.
The proposal was passed by more than the two-thirds majority of MGM's debt owners who needed to approve it, a person familiar with the matter said. The company is expected to begin bankruptcy proceedings immediately, after which Spyglass principals Gary Barber and Roger Birnbaum will run a slimmed-down MGM and produce new films.
The development thwarts -- for the moment -- a last-minute effort by corporate raider Carl Icahn to kill the Spyglass deal in favor of a merger between MGM and Lions Gate Entertainment. Icahn is the largest shareholder in Lions Gate and has recently become a major owner of MGM's debt.
The studio's creditors are deciding MGM's future because it can no longer afford interest paymetns on its more than $4 billion in debt.
[Update, 3:22 p.m.: Icahn cut a deal with MGM's creditors to support the Spyglass plan in exchange for a seat on the company's nine-person board of directors after the beleaguered studio exits bankruptcy, a person familar with the situation confirmed.
As part of the deal, the creditors agreed, at Icahn's insistence, to change the arrangement with Spyglass so that its library of about 15 titles will no longer be merged into MGM. As a result, Spyglass will not get a 5% equity stake in the reorganized MGM, as originally planned. Icahn had believed that Spyglass' movies, including "The Sixth Sense" and "Seabiscuit," were being overvalued.
Under the bankruptcy plan, MGM's creditors will swap all of their debt in exchange for more than 95% of the studio's equity.
Because of the last-minute agreement, Icahn voted his debt, which totaled between 12% and 20%, for the Spyglass plan.
People close to the matter said that Icahn still favors a merger of MGM with Lions Gate and will continue to push other creditors to approve it. Until MGM exits bankruptcy, creditors can switch their support from the Spyglass plan to any other, including a merger with Lions Gate. However, it appears that MGM's creditors would want more favorable terms than the 55% stake in a merged entity they were offered by Lions Gate.
MGM is expected to enter Chapter 11 bankruptcy next week. Barring any delays, the process could last as little as one month.]
[Update, 6:03 p.m.: Another person familiar with the matter said that in fact Icahn voted against the Spyglass bankruptcy proposal and there were no alterations to the plan to merge Spyglass's 15 film library into MGM.]
-- Claudia Eller and Ben Fritz