Metro-Goldwyn-Mayer files for bankruptcy after creditors strike deal with Carl Icahn

Metro-Goldwyn-Mayer, Hollywood's fabled and once most powerful studio, has filed for bankruptcy protection after it could no longer pay down its crippling debt or make and release new movies.

The filing, made Wednesday morning, comes after MGM's leading creditors struck a deal with corporate raider Carl Icahn, who had amassed about 15% of the company's debt and was previously pushing for a merger between MGM and Lions Gate.

Instead, Icahn agreed to support a plan under which the chief executives of film production and finance company Spyglass Entertainment will run MGM once it exits Chapter 11, which could occur in as soon as one month.

Under the pre-packaged bankruptcy plan, MGM's $4 billion worth of debt, upon which it could no longer afford to pay interest, will be converted into more than 99% of the equity in the studio, which is valued at $1.9 billion. Spyglass principals Gary Barber and Roger Birnbaum will become co-chief executives and co-chairmen, running a slimmed-down MGM with significantly less overhead and start producing new movies, including a James Bond sequel and two films based on "The Hobbit" that will be co-financed with Warner Bros.

Under an agreement reached Tuesday night, Icahn has agreed to change his "no" vote on the Spyglass plan cast last Friday to a "yes" and also to not challenge the plan in bankruptcy court -- a possibility that some people close to MGM had feared could delay the reorganization process.

In exchange, the company's leading creditors agreed to make certain changes to the plan. Most notably, 15 titles from Spyglass' library will no longer be merged into MGM in exchange for a 5% stake in the studio once it exits bankruptcy. Spyglass' co-chief executives Barber and Birnbaum will instead get a very small stake of just 0.5%, said by people familiar with the deal, in exchange for bringing certain projects to MGM that they had in development at their company.

Icahn had opposed the merger with the Spyglass library titles, which included "The Sixth Sense" and "Seabiscuit," because he believed it overvalued the films.

In addition, Icahn will be allowed to appoint one person to MGM's nine-person board of directors. A likely possibility is his son Brett, who has played a key role in his father's dealings with the studio and with Lions Gate. Barber and Birnbaum will also get seats on the board.

Upon exiting bankruptcy, the creditors have also agreed to negotiate in good faith with Lions Gate about a potential merger. However, the talks will not be exclusive, meaning other parties can propose a merger or acquisition as well. The creditors previously rejected a proposal by Lions Gate that would give them 55% of the equity in a combined studio.

It has taken MGM creditors more than a year to agree on a reorganization plan that would see the 86-year-old studio remain as a stand-alone operation. They also solicited acquisition offers but none, including a $1.5 billion bid by Time Warner Inc., satisfied the creditors.

Once MGM exits bankruptcy, Barber and Birnbaum will face formidable challenges in rebuilding MGM, which has lost much of its luster since it was acquired by a consortium of investors including Sony Corp. in 2004 for nearly $5 billion. The studio's primary asset, its library of about 4,000 titles, now generates significantly less cash flow due to the fading DVD market.

In addition, the company's financial woes have meant it was barely able to produce or distribute any films for the past year under motion picture Chairwoman Mary Parent, who recently exited. Its only release in the past year was the comedy "Hot Tub Time Machine," which was a box-office disappointment. MGM has two unreleased films in the wings: A remake of the Cold War thriller "Red Dawn" and the horror thriller "The Cabin in the Woods." Another movie, the comedy "Zookeeper" starring Kevin James, will be released by Sony Pictures next summer.

Barber and Birnbaum will be looking to raise $500 million once MGM exits bankruptcy in order to fund operations and the production of new films and television shows.

-- Ben Fritz and Claudia Eller

Comments

[The Deuce]

How is a $50 million gross + big DVD revenue for HOT TUB a disappointment?

[Native Angeleno]

MGM hasn't been MGM since it stopped producing movies back in the friggin '70s, already.

Where's the fork?

[Graham]

Ugh,,,it kills me that Joss Whedon has a completed film that there is no way of seeing. Hopefully Cabin in the Woods is released soon.

[JoPinCa]

Amazing!!
The executives command astronomical salaries;
the actors/actresses command astronomical salaries;
the debt continues to pile up,
then they declare bankruptcy and the debtors take it in
the neck.

[Boo Boo]

Honestly, who cares?

[Bill]

Hot Tub Time Machine is only a "disappointment" if you take the legendary Hollywood Accounting into consideration.

Hopefully the new James Bond movie will still move ahead with Sam Mendes at the helm. Casino Royale was easily one of the best films in the series, but The Quantum of Solace was a shocking misstep. The editing was terribly misguided and the film suffered greatly for it. The series doesn't need another reboot, it just needs to pretend the last film didn't happen.

[Garrett]

The debtors deserve to take it somewhere else. They squandered all of the opportunities they had and spent the last year-and-a-half just sitting on their hands while projects in development languished. They have only themselves to blame. And trust me, this Spyglass Deal is going to really screw them. This was a lose-lose scenario. But this isn't anything new for the debtors, truly some of the dumbest financial "geniuses" in the world, who've done nothing but make bad decisions lately.

[Lawrence]

Honestly, who's more to blame about astronomical salaries? The celebrity director/producer/actors who receive them or the idiot studios for shelling them out in the first place?

Until the music and film industries understand that and stop embracing an old business model, their futures are doomed.

[jack]

Another great American company goes down under the collossal greed of corporate raiders. This is exactly how Mitt Romney made all his millions. Between shipping all our jobs over to communist China and destroying American businesses, you have to wonder how Republicans have time to play all that golf and hang out in airport bathrooms.

[sinanju]

As I understand it, the Hollywood business model has for the last thirty years or so has depended upon finding some corporate entity dumb and naive enough to want to own/invest in them. Edgar Bronfman, Sony, etc... there has always been someone who thinks it's glamorous to own a movie studio. The insiders all get paid and the investors get fleeced.

[screenwrite]

Alright time to drop some knowledge... Why Hot Tub Time Machine was a disappointment: On paper HTTM made a generous profit from initial budget to box office share, in reality the movie cost around 80 million prior to hitting theatres, why? Studios nowadays generally put more money into the advertising of the film to get you into the seats than they do into the film itself... another secret studios are not even looking for profit from the box office, instead the are looking to recoup around 90% for a successful theatre run... where movies make their money are in DVDs and television licensing, what the box office numbers give them is leverage in creating these contracts to drive up the prices and can then generate a high return on films as it is then up to the network to take on costs for advertising. Why actors producers directors etc. Are justified with out of this world fees: While Hollywood's top billed actor/tresses can demand high salaries for each film and now even taking negotiated percentages on the back end it because they themselves are free advertising. Whenever they are on a talkshow wheneverr they give an interview thy are generating word of mouth and designating a films cool factor, also being a big name star gives the movie instant credibility a priceless asset in the Indie world but in the major studio world the big time actors mean a guarantee of a certain number of tickets. Lets use the undisputed worst movie of all time for an example 'Gigli' this movie grossed 7 million dollars at the box office and probably would have grossed even more had it been in fast forward with no dialogue and Benny hill music playing. People even bought this movie on DVD and rented it for God knows why but after all said and done the studio was likely able to come back and recoup somewhere into the 80% of production costs and written it off as a neglible loss.

[personal bankruptcy lawyer]

I hate to say this ......... dare I ...... but maybe the movie actors are making too much money per film. Or maybe the trade unions have killed their Golden Goose

The stars make more money for one film than the average guy could earn in a life-time ....... then they get residuals.

[loan bankruptcy]

Thanks for the information..I really like your post..God knows what will be the future of MGM..

[bankruptcy credit report]

I bought our home before we were married and now we simply cannot afford it. Can my wife go buy a home under his name and I foreclose on this one without it affecting HIS credit?