Lions Gate talking to MGM about possible merger of lions

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Lions Gate Entertainment, the embattled studio under siege from dissident investor Carl Icahn, has been holding merger discussions with the management of Metro Goldwyn Mayer, according to people close to the situation.
The talks, if successful, could result in a powerful independent studio with a library of thousands of movies and television shows that would be run by Lions Gate’s management team.

Knowledgeable people said that Lions Gate CEO Jon Feltheimer and Vice Chairman Michael Burns are pursuing a merger with MGM in order fend off a takeover attempt by Icahn, who has accumulated nearly one-third of Lions Gate’s stock and has threatened to wage a proxy war. However, the people said that the talks are fluid, and Lions Gate has not presented a specific merger proposal. Moreover, such a transaction would face significant hurdles.

Lions Gate would have to win Icahn’s approval, which it could possibly do by granting him board seats as part of a settlement to stave off his proxy war. Icahn opposed a $1.4-billion offer by Lions Gate to acquire MGM earlier this year.

Icahn could not be reached for comment.

MGM is looking for a way to avoid bankruptcy as it struggles with $4 billion in debt, much of which it incurred several years ago in a leveraged buyout by an investor group.

The 86-year-old studio’s top debt holders have been pushing the company to reorganize in a pre-packaged bankruptcy. The creditors have been in talks with film finance and production company Spyglass Entertainment and “Twilight” studio Summit Entertainment about taking over MGM under such a scenario.

In order for a merger with Lions Gate to go forward, creditors would need to bless the transaction or be repaid the substantial amount of money that they are owed by MGM’s current owners, which include private equity funds Providence Equity Partners and TPG Capital.
Spyglass and Summit have their own plans for MGM and have been eagerly awaiting word about where their proposals to run the studio stand, as reported by The Times on Tuesday.

-- Claudia Eller and Ben Fritz