MGM said to consider prepackaged bankruptcy

New York Times – With about 10 days to go before the next round of bids are due, Metro-Goldwyn-Mayer is still considering other options to help reorganize its almost $4 billion debt load. They include a potential stand-alone bankruptcy plan, people with direct knowledge of the matter said Tuesday, Michael J. de la Merced reports in The New York Times.

MGM put itself up for sale last fall as part of an effort to pay off the debt it took on in a $5 billion leveraged buyout in 2004. Its 4,000-title film library and rights to the James Bond series and The Hobbit have attracted the eye of rival studios and private equity firms. But potential buyers have signaled that they were willing to pay only about $1.5 billion or so.

That may lead to MGM considering filing for a prearranged bankruptcy that would involve its creditors taking over the studio in exchange for forgiving their debt, these people said.

MGM has been working on potential alternatives to a sale for some time, having hired advisers like the boutique investment bank Moelis & Company and the law firm Skadden, Arps, Slate, Meagher & Flom. In August, it hired the restructuring expert Stephen F. Cooper to help lead the company.

While a forbearance agreement MGM has struck with its lenders will expire on March 31, the company is likely to seek yet another extension of that agreement, one of these people said. But the studio must also contend with a $250 million revolving credit facility that matures early next month, this person added.

Any final decision is likely to come after March 31, this person said. An MGM spokeswoman, Susan Arons, declined to comment.

MGM has faced several complications in its efforts to reorganize its debt. Its lender group has about 140 members, led by JPMorgan Chase.

Questions have also arisen over the prospects of MGM’s business, given the poor performance of its sole release last year, a remake of Fame. It has several movies lined up for release this year, including the comedies Hot Tub Time Machine and The Zookeeper.

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MGM expected to draw six bids by 19 March

Reuters – Six companies are expected to make binding offers for storied Hollywood studio Metro-Goldwyn-Mayer MGMYR.UL by a newly set March 19 deadline, a source familiar with the situation said on Tuesday.

Those expected to participate in the new round of bidding include Time Warner, Lions Gate, Liberty Media Corp, Access Industries, a company controlled by industrialist Len Blavatnik, and Elliott Management, according to two sources close to the deals.

Several of them had been involved in an earlier round of non-binding bids that went as high as $1.7 billion. It was unclear who the sixth party was, they added.

News Corp, which had been interested, has pulled out of the process. Summit Entertainment, home to the Twilight franchise, has remained on the sidelines throughout the process and was undecided on whether to put in an offer, one of the sources told Reuters.

The source said Qualia Capital has also been waiting in the wings with a plan to restructure some of MGM’s debt into equity, and then infuse cash into the company to keep it running as a going concern if a sale does not transpire.

Bidders, after looking over the books and assets including MGM’s film library of mostly older gems like the James Bond and Pink Panther franchises, are unlikely to put in second round offers above $1.5 billion, the sources said.

MGM, Time Warner, Lions Gate, Summit and Liberty Media all declined comment or were not immediately available.

Once-thriving studio MGM owns a piece of two Hobbit films to be produced by Lord of the Rings director Peter Jackson, but its attraction lies partly in its library of more than 4,000 film titles.

MGM, which enlisted turnaround specialist Stephen Cooper last year to help it restructure, got saddled with the debt from a 2005 buyout. The studio said in November it was exploring a sale, receiving tentative interest from rival media companies as well as buyout shops.

If the current round of bids comes in too low, MGM’s creditors could decide to keep and restructure the studio, possibly filing for pre-packaged Chapter 11 bankruptcy reorganization, sources say.

MGM is owned by a group including private equity firms TPG, Providence Equity Partners, DLJ Merchant Banking Partners and Quadrangle Group, and media companies Sony Corp and Comcast Corp.

Analysts say Time Warner might be in the best position to acquire MGM as its film library would fit well with its Warner Bros. catalog.

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MGM sets deadline for receiving bids

Variety – MGM has set March 19 as the deadline for receiving binding bids on its assets — a sign that it may be close to working out a sale or restructuring.

The studio disclosed the deadline Monday without further comment.

MGM invited a half-dozen bidders last month to participate in a second round of bidding, which included allowing qualified bidders the opportunity to go over MGM’s internal financials.

People with knowedge of the situation said bidders include Time Warner and Lionsgate. With $5 billion in cash remaining from the sale of its cable systems, Time Warner has been viewed as a likely bidder since MGM put itself up for sale in November.

As for Lionsgate, it’s facing a tender offer from Carl Icahn to boost his stake to nearly 30%—partly because the billionaire wants to have a say in possible acquisitions such as MGM.

MGM received two more months of exemption from debt payments on Jan. 29 as lenders agreed to extend the “forbearance” period on interest payments on its debts until March 31.

The studio released a single film, a remake of Fame, in the past year. Its next film, comedy Hot Tub Time Machine, opens March 26.

MGM is facing repayment of its $250 million revolving credit line in early April and a $1 billion payment on its $3.7 billion debt in July 2011. Studio was taken private five years ago by a consortium that included Sony, Providence Equity, TPG Capital, Comcast, DLJ Merchant and Quadrangle.

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Barbara Broccoli and Pinewood back new Second Light talent program

Pinewood and Bond producer support diversity in new UK talent scheme Second Light

Pinewood Studios Group, Bond producer Barbara Broccoli and First Light are delighted to host the launch of a brand new talent development scheme for young people of Black and Minority Ethnic (BME) backgrounds across the UK entitled Second Light.

The programme has been created by Pinewood’s nominated charity First Light, a leading nationwide initiative enabling disadvantaged young people throughout the UK to realise their creative potential through filmmaking. Originally the brainchild of filmmaker Sir Alan Parker and now chaired by James Bond producer Barbara Broccoli, First Light has helped almost 30,000 young people between the ages of five and 19 to write, act, shoot, produce, edit and screen more than one thousand films and hundreds of media projects since launching in May 2001. These films are funded by National Lottery cash through the UK Film Council and as well as via its Mediabox programmes on behalf of the Department for Children, Schools and Families.

Click here to view photographs from the event tour, including 007 producer Broccoli and executive producer Callum McDougall.

Building on First Light’s excellent connections within the film and broadcast industry, Second Light is a new, guided training scheme supporting 30 talented young people from BME backgrounds seeking careers in the film industry. Funded by Skillset and the UK Film Council with the support of Pinewood Studios, BAFTA, the Cultural Diversity Network, Framestore and PACT as well as other prominent industry partners, Second Light will provide these young people with bespoke training, work placements and mentor support over a sustained period of 15 months.

The scheme launches with the thirty participants aged 18-23 from Glasgow, Bristol and London taking a tour of one of the world’s most iconic film studios and gaining exclusive, behind-the-scenes access to some of the most prolific film sets.

Pinewood is further endorsing the scheme by offering industry placements to its participants at the end of the training period in film and television post production.

In helping these young participants realise their potential, Second Light will contribute to the UK film industry’s endeavours to broaden the diversity of its workforce and change perceptions about barriers to entry.

Second Light is being managed by First Light in partnership with three delivery organisations; The Video College (London), the Glasgow Media Access Centre and Calling the Shots Films (Bristol).

Pinewood’s CEO Ivan Dunleavy comments “As a cornerstone of the UK’s film and TV industry, educating the next generation of creatives forms part of Pinewood’s legacy. Second Light helps us achieve this whilst breaking down the barriers of this traditionally exclusive industry. I’m very proud that Pinewood is able to assist in teaching filmmaking skills to youngsters from a diverse array of backgrounds through such positive and proactive initiatives.”

Barbara Broccoli adds, “The success of the British industry is dependent on the talent and skills of people both in front of and behind the camera. Second Light offers young people from diverse backgrounds an opportunity to work with industry professionals and realise that a career in filmmaking is within their reach.”

Dinah Caine, Skillset’s CEO comments, “We’re delighted to be supporting this pilot scheme of Second Light—it’s a fantastic start for these young people across the UK to gain skills, knowledge and hands-on experience in production. One of our key aims is to develop and nurture talent from under-represented groups and give them access to opportunities they might not otherwise have. Opening up the industry to a wider, diverse pool of talent is not only beneficial for the filmmakers but also strengthens the industry as a whole.”

Second Light participant Raisah Ahmed shares “From the age of eleven I’ve been writing stories and plotting scenes in my head, I’ve always considered myself a storyteller. Having studied literature at university, I strengthened my writing skills, and gained invaluable knowledge on the world outside of the cultural bubble I felt I was brought up in. My main goals for this apprenticeship are to learn as much of the film production process as possible, to experience first hand how ideas go from thoughts or brainstorming to a final product. The three main areas I aim to focus on are Script Writing (with a focus on the production of ideas), the production process and directing.”

Second Light participant Corina Skerritt adds “I want to do the scheme because it’s an amazing opportunity, I want to be the best and what better way to do that than to be trained by the best. This would be an opportunity for me to spend a year doing what I absolutely love as well as feeding my thirst for learning. I’d of course like to get a job at the end of the scheme but more importantly I’d like to meet people as passionate about film as I am so when I come to make my own films I’ll have a group of talented people that I know and trust to help me.”

For more information please visit the Second Light website: www.firstlightonline.co.uk/second-light.

Click here for more information on First Light, Pinewood’s nominated charity.

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MGM said to seek second round bids by mid-March

Business Week – Metro-Goldwyn-Mayer Inc. is asking suitors to submit new bids for the studio by mid-March, about two weeks before its respite from interest payments expires, according to three people with knowledge of the situation.

Billionaire Len Blavatnik’s Access Industries, Time Warner Inc., Lions Gate Entertainment Corp. and Liberty Media Corp. are among the potential buyers examining MGM books, said one of the people, who requested anonymity because the talks are private.

MGM, distributor of the “James Bond” movies, is exploring a sale after failing to make payments on $3.7 billion in debt. Suitors are trying to assess the value of MGM assets that include a 4,100-movie library, future “Bond” movies and rights to co-distribute films based on J.R.R. Tolkien’s The Hobbit.

“It’s an old library,” said Matthew Harrigan, a Denver-based Wunderlich Securities analyst who follows entertainment companies. “Just about the only thing that has had significant value over the last five years is the Bond franchise.”

No firm date for the second-round bids has been set because the suitors are still seeking information from the Los Angeles-based studio, which was taken private for $5 billion by buyers including Providence Equity Partners in 2005.

Non-binding first-round bids approached $2 billion, contingent on due diligence, two of the people said. A lenders’ forbearance agreement is set to expire on March 31. They have extended the payment moratorium from the original Dec. 15 deadline to give the studio more time to consider offers.

MGM spokeswoman Susie Arons declined to comment. Peter Wilkes, a Lions Gate spokesman, didn’t return a call seeking comment. Courtnee Ulrich, a spokeswoman for John Malone’s Liberty Media, didn’t respond to a request for comment.

Access Industries

Stewart Till, chief executive officer of Access Industries’ Icon film distribution business in London, said in an earlier interview the company has the wherewithal to be a potential bidder for major entertainment properties.

Providence, in Providence, Rhode Island, has a 29 percent stake in MGM, while TPG, based in Fort Worth, Texas, has 21 percent. Sony Corp., the Tokyo-based owner of Columbia Pictures, and Comcast Corp., the largest U.S. cable TV company, each own 20 percent. DLJ Merchant Banking Partners has 7 percent, and Quadrangle Group owns 3 percent.

Valuing a library is a lengthy process because each film must be examined to assess revenue potential and to determine who may have a contract to share in profit or distribution rights, analyst Harrigan said.

Library Details

“You need a ridiculous amount of detail,” said Harrigan. “You look at every movie to see what you can get.”

Time Warner, New York-based parent of the Warner Bros. studio, gained 18 cents to $28.86 today in New York Stock Exchange composite trading. Vancouver-based Lions Gate, maker of the Saw movies, added 7 cents to $5.41.

New York-based Access Industries owns a stake in Top Up TV, a U.K. pay television service, along with the Russian TV company Amedia, and in 2008 acquired control of the U.K. arm of actor/director Mel Gibson’s Icon Productions Inc., the U.K.’s Daily Telegraph reported at the time.

Liberty Capital, one of Englewood, Colorado-based Liberty Media’s tracking stocks, rose $2.44 to $34.20 on the Nasdaq Stock Market. The company is evaluating options for its movie production unit, Overture Films.

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The secret numbers behind the MGM fiasco

Defamer.com – Two weeks ago, author Edward Jay Epstein explained how the $5 billion deal in 2004 had cleaned out Wall St. hedge funds. Now he has obtained the dealbook that spells out exactly what went wrong.

MGM, once the shiniest studio in the Hollywood galaxy, has fallen on hard times. Last October it failed to making the interest payment due on its $3.7 billion debt, and even with the six month forbearance granted by its creditors, it is hovering the threshold of bankruptcy. Its equity investors—including three big hedge funds—have been all but wiped out. The 140 banks that financed the leveraged part of the leveraged buyout deal are in danger of losing over $3 billion. With the creditors demanding their money, and the clock running on its forbearance, MGM had put itself up for sale, retaining investment bankers Moelis & Company to solicit offers from potential buyers that were due in mid January 2010. For a movie studio that was bought for $4.85 billion in 2004 (which is over $5 billion in 2010 dollars), the bids that have come in so far are shockingly low. Time Warner, for example, is offering under $2 billion and the bid from Lionsgate, once the leading contender, is worth even less.

The secret numbers in the confidential information memorandum sent out by Moelis explain the problem, which goes to the root of what is happening to the movie business today. MGM’s main asset, as is true in the case of all Hollywood studios, is its library comprised of 4,100 film titles, including all the James Bond movies, and 10,600 television episodes. The money that comes in through this library comes from DVD sales—mainly older titles sold in discount bins at Wal-Mart and other retailers—and television licensing packages to Pay TV, cable networks, and television stations around the world.

The bet that the hedge funds made when they put up most of the equity for the $4.85 billion LBO in 2004 was that DVD revenue from the library would hugely increase when people replaced their standard DVDs with the Blu-Ray high-definition format that was just being introduced. But their projections proved to be pipe dreams. Instead of expanding, MGM’s DVD revenue plummeted, according to the confidential memo. MGM’s DVD revenues fell from $394.7 million in 2008 to just $69.8 million in the 2010 fiscal year (which ends March 31).

This huge drop was attributed to a host of factors, ranging from the worldwide downtown in DVD sales to fewer new MGM releases. What turned out to be the real killer for MGM’s library was what the memo termed “significant price erosion.” Wal-Mart, pressured by competition from Netflix, Red Box, and video downloading, drastically reduced the “price point” that it would buy older (or so-called “catalogue”) DVDs, driving prices down to less than $5 a copy. So studios’ saw the stream of profits from older DVDs wither away.

As with other studios, the larger part of MGM’s library’s money comes from television licensing. At first glance, these revenues appear remarkably stable, declining a mere one percent from $535.1 million in 2008 to $529 million in 2010. But like other phenomena in Hollywood, appearances can be deceptive. MGM had structured its long-term licensing contracts structured so the cable networks wind up underpaying for the early years and overpaying for the later ones, which is a common practice at studio libraries. As a result, even as properties lose value over the course of the contract (old films are worth less than newer ones), the illusion of stability is maintained . Of course, when MGM renews these multi-year contracts, the money it will get drops precipitously.

And as impressive as $529 million in revenues may seem, it is not the amount MGM actually gets to keep since it splits most of these proceeds with various “third parties,” including producers, stars, directors, writers and Hollywood guilds. For example, the revenues from the 24 James Bond movies—which are the library’s most valuable asset generating nearly 30% of its revenue—have to be split 50-50 with Danjaq LLC, the holding company for the Broccoli family that originally created the franchise. These participations and residuals (which is what the guilds get for their pension funds) totaled $235.2 million in 2010. In addition, there were $33.2 million in other expenses for handling these complex rights, including calculating and issuing more than 15,000 different checks per quarter to participants.

MGM also had to pay Fox a fee of $22.2 million for distributing its DVDs. What MGM kept turned out to be not enough to pay its overhead—$135.9 million in 2010—and other costs, leaving it with a negative operating cash flow of $52.4 million. The bottom line here is that MGM cannot pay off its $3.7 billion in debt. And even if a white knight gallops in to carry off the library, the investors and creditors will take a loss.

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Pinewood Studios and Studio Hamburg announce joint venture

Pinewood Studios and Studio Hamburg are today launching a Joint Venture that will allow European and International filmmakers to take advantage of their joint infrastructure and skills when producing feature films in Germany. The newly created “Pinewood Studio Berlin Film Services” will allow filmmakers to benefit from Studio Hamburg’s production and studio services in Berlin and Hamburg, as well as from Pinewood Studios’ extensive experience gained by being at the forefront of the creative industries for nearly 75 years.

Dr. Robin Houcken, managing director of Studio Hamburg said: “The joint venture offers international film producers new and cost effective solutions for filming in Germany.”

Ivan Dunleavy, CEO, Pinewood Studios Group, added: “Studio Hamburg’s excellent stages in Berlin, coupled with Pinewood’s expertise and reputation in the film industry, will undoubtedly be an attractive offering to many European and International producers that favour the excellent skills base, varied locations and incentives available.”

Pinewood Studios Group is the leading European provider of studio and related services to the worldwide film and television industries. Synonymous with world class British and international productions, the impressive heritage of its UK-based Pinewood, Shepperton and Teddington Studios date back to the early 20th Century and are home to some of the most successful features films and TV shows ever made (Slumdog Millionaire; Harry Potter and the Half Blood Prince; James Bond).

Studio Hamburg Group will offer filmmakers the most modern, designated, open-plan film studios in Europe. The Group also incorporates Studio Hamburg Post Production and Studio Hamburg Filmtechnik (Film technology), as well as the Studio Hamburg Media Consult International (MCI) workshops. Studio Hamburg’s offering will give producers easy access to a range of world class services including post production, set construction and scenography.

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Six potential MGM bidders eye its film library

The Times – It is the sort of plot that could have come from the golden age of Metro-Goldwyn-Mayer—six suitors, one object of all that affection and, in a perfect world, a sunset-bathed happy ending. The problem is that the economic skies over Hollywood, like the rest of the world, are not all that sunny at the moment.

The suitors are undaunted. They are scrutinising MGM’s books, all of them aiming to get their hands on its production division and library of 4,000 titles. But the length of time that it has taken the debt-laden studio to reach this point—together with indications that offers are likely to come in significantly below the $3.7 billion (£2.7 billion) that it owes its bank lenders—suggests that the finale may not be quite as perfect as planned.

Nor is MGM alone. Acquired for $5 billion in 2005 by a consortium including Providence Equity Partners and TPG, the private equity companies, and Comcast and Sony, the media groups, it is not the only studio up for sale. Also on the block is Miramax, a division of the Walt Disney Company, which essentially entails a library sale because its studios have closed. Overture, an upstart production and distribution company that is a unit of Starz Media, is also rumoured to be in play.

An initial round of bidding for MGM to establish a price drew expressions of interest from ten parties last month, according to people familiar with the matter. The company has opened its books to six potential bidders for a second round, which is expected to result in further offers within weeks.

Although there is no formal timetable for bids, activity is likely to be driven by the knowledge that MGM’s $250 million revolving line of credit matures in early April.

Bidders are thought to include Time Warner, Lions Gate Entertainment, Summit, Liberty Media, News Corporation, owner of The Times, and Anil Ambani, the Bollywood mogul. He owns a controlling stake in Steven Spielberg’s DreamWorks SKG studio and has ambitions to become one of the world’s most powerful film bosses.

Qualia Capital, the investment fund, is also understood to have expressed an interest, proposing a cash injection and restructuring in return for equity.

Potential bidders are tight-lipped about their intentions towards MGM, not least because some are also keeping an eye on Miramax. All will be trying to determine how to place a value on the company when its film library is falling in value, caused largely by plunging DVD sales, and when many of MGM’s film assets are shared by multiple parties.

The company’s film library generated $450 million in 2008 through licensing deals for television and other distribution channels, but now it generates only about $280 million, according to The Wall Street Journal. The library’s most valuable recurring asset is the James Bond series (the next Bond movie is expected to be released next year), but, given its financial distress, little else has recently been done to replenish its value by investing in new releases, according to a recent report by Anthony DiClemente and George Hawkey, the Barclays Capital analysts. MGM’s only release last year was an unremarkable remake of Fame, the 1980s musical.

Any deal for MGM would have to be agreed by its 140 lenders and getting them all to agree on a valuation may not be easy for JP Morgan Chase, which is leading the studio’s lending group.

For this reason MGM is considering a pre-packaged bankruptcy along with a sale to reduce its liabilities and clean up its balance sheet, a move that would not necessarily require unanimous lender agreement. Remaining independent with restructured debt is also a possibility.

The search for a new owner for MGM has been given new impetus after Lions Gate Entertainment indicated last week that Miramax, which has produced Pulp Fiction and the Kill Bill films, would fit its acquisitions criteria. Disney has closed Miramax’s offices and production facilities and has been seeking buyers for the studio’s name and library of about 700 films, which are believed to be worth $700 million. Other potential bidders are thought to include Summit Entertainment, maker of the Twilight films, and Qualia Capital.

Given the need for content to fill a growing array of “anytime, anywhere” media platforms, including mobile devices, this level of interest is not surprising, but the knowledge that Miramax, like MGM, has been in play for some time suggests that potential buyers are extremely cautious.

The announcement last week that Viacom had bought back a majority stake in the DreamWorks film library, which includes Saving Private Ryan, from George Soros, the billionaire investor, for $400 million indicates that interest for such deals does still exist, but only at the right price.

• MGM owns the world’s largest library of modern films, comprising about 4,000 titles and more than 10,400 television episodes
• MGM was founded in 1924 when Marcus Loew gained control of Metro Pictures, Goldwyn Pictures and Louis B. Mayer Pictures
• Its films have received 205 Academy Awards and its franchises include James Bond, Rocky and the Pink Panther

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Pinewood Studios launch apprenticeship scheme

Press Release – A new apprenticeship scheme designed to give young people a start in the UK’s thriving film industry was launched at Pinewood Studios by film Minister Siôn Simon today.

The 10 new apprentices join 12 others already working at the Pinewood Studios Group on a separate scheme run by Skillset, the organisation responsible for skills and training in the creative media industries.

All of these posts will contribute to an ambition of 5,000 apprenticeships in the creative industries a year by 2013, a key pledge from the Government’s Creative Britain report.

Mr Simon met drapes apprentice Sam Healey, one of the first 10 apprentices to start under the new Pinewood scheme. Drapesmasters are responsible for the production and installation of all soft furnishings on film sets, which can involve anything from a velvet cushion to a hot air balloon.

Siôn Simon said: “The film industry can be incredibly tough to break into, but Pinewood’s apprenticeship scheme is a welcome route into this exciting and highly creative industry.”

“Sam and the other apprentices I met today are employed for their ability and potential, and I am sure they will do extremely well. Pinewood Studios is working hard to address any skills gaps while providing a great start for some enthusiastic young people.”

The Minister also met four Skillset Set Craft Apprentices currently working on the new Harry Potter film. This is the second year of this highly successful apprenticeship scheme which gives opportunities for emerging talent to work on the sets of some of Pinewood’s biggest productions, including Harry Potter, James Bond, Batman and the forthcoming John Carter of Mars.

Ivan Dunleavy, Chief Executive at Pinewood Studios commented:

“The UK’s creative sector is one of the best in the world and its success is dependent on the talent and skills of the people working within it. Pinewood’s apprenticeship scheme demonstrates the Group’s ongoing investment in the skills and infrastructure that is essential to the future of the UK’s creative industries.”

Mr Simon also took a firsthand look at Pinewood’s globally unique facilities including its Underwater Stage and Post Production department. He ventured behind the scenes to discover the technical and craft skills integral to filmmaking and visited a range of companies based on the Pinewood lot that work in the creative industries.

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Billionaire Len Blavatnik said to join bidding for MGM

Bloomberg – Billionaire Len Blavatnik is among the second-round suitors for Metro-Goldwyn-Mayer Inc., distributor of the James Bond movies, two people with knowledge of the situation said.

Lions Gate Entertainment Corp., Time Warner Inc., Liberty Media Corp. and Elliott Management Corp., working with Hollywood financier Ryan Kavanaugh, also are in the bidding, according to people close to the process who sought anonymity because discussions are private. They declined to discuss amounts proposed in the non-binding first round.

Advancing to the second round gives suitors access to more detailed information before making a formal bid for the Los Angeles-based studio, which owns a 4,100-film library and is exploring a sale after failing to make payments on $3.7 billion of debt. Last week, lenders extended a moratorium on interest payments to March 31, allowing more time for negotiations.

“The price has come down so far that it’s attracting non-studio bidders,” said David Davis, managing partner at the entertainment advisory firm Arpeggio Partners in Santa Monica, California.

Matthew Harrigan, an analyst with Wunderlich Securities, estimated last month the company is worth $1.6 billion to $1.7 billion. When the studio put itself up for sale in November, MGM creditors sought at least $2 billion, people with knowledge of the situation said then.

Tough to Compete

Blavatnik may be at a disadvantage because he doesn’t own a film distribution business, Davis said in an interview. Studio bidders would likely plan to close MGM’s distribution unit to reduce costs, he said.

“I don’t see how companies that don’t own motion-picture distribution systems can compete on bidding,” he said. “You have big overhead savings.”

Blavatnik’s bid marks an effort by the Ukrainian-born industrialist to expand in the U.S. Blavatnik, a U.S. citizen, is chairman of New York-based Access Industries Holdings LLC, which owns a stake in Top Up TV, a U.K. pay television service, and in 2008 acquired control of the U.K. arm of actor/director Mel Gibson’s Icon Productions Inc., the U.K.’s Daily Telegraph reported at the time.

A spokesman for Blavatnik declined to comment, as did Susie Arons, an outside spokeswoman for MGM. Ed Adler, with New York-based Time Warner, and Courtnee Ulrich of Liberty Media also wouldn’t comment.

The Wall Street Journal reported today that Time Warner offered less than $2 billion in cash for MGM, citing people familiar with the matter.

Other Suitors

In addition to those bidders, News Corp., parent of Twentieth Century Fox, and Qualia Capital LLC, led by Amir Malin and Ken Schapiro, have each proposed restructuring the debt and injecting cash to recapitalize the company, people with knowledge of the process said last week. Both companies are based in New York.

News Corp. is unlikely to win the bidding because others are more interested, Chairman and Chief Executive Officer Rupert Murdoch said on a conference call yesterday.

MGM will probably seek a so-called pre-packaged bankruptcy to complete a sale, said Clark Hallren, managing director at the Los Angeles-based entertainment advisory firm Clear Scope Partners. The move would eliminate the need for MGM’s owners to get approval from each of the company’s 140 creditors, he said.

“You’ve got to have a bankruptcy as a matter of process,” said Hallren, who worked for 23 years in JPMorgan Chase & Co.’s entertainment banking division. “There’s no way you’re going to get 140 people to agree to anything.”

Lions Gate

Lions Gate is talking with One Equity Partners, a private equity investment arm of JPMorgan Chase, about becoming a partner in its bid, according to a person with knowledge of the talks. In May 2008, Lions Gate agreed to sell a 49 percent stake in its TV Guide Network to One Equity for $123 million.

Tasha Pelio, a spokeswoman for New York-based JPMorgan, declined to comment on any role the bank may have in the MGM deal. Peter Wilkes, a Lions Gate spokesman, wouldn’t comment on MGM or JPMorgan.

Blavatnik, 52, was ranked 44th on Forbes magazine’s 2009 list of the 400 richest Americans with a $5 billion fortune made in oil and gas. He emigrated to the U.S. from the former Soviet Union in 1978 and studied at Columbia University and Harvard Business School before founding Access Industries in 1986, according to the magazine.

In June, Blavatnik offered $33 million in an unsuccessful bid for a stake in Irish broadcaster Setanta Sports, BBC News reported at the time.

Lyondell Link

MGM Vice-Chairman Stephen F. Cooper, who is leading the studio’s restructuring, also serves as supervisory board vice chairman and head of the restructuring committee at LyondellBasell Industries, partly owned by Blavatnik’s Access Industries. The company’s U.S. operation, Lyondell Chemical Co., filed for bankruptcy protection in January 2009.

With backing from New York-based Elliott Management, Kavanaugh, 35, finances movies for Sony Corp. and NBC Universal’s Universal Pictures and produces films through his Relativity Media LLC, based in West Hollywood, California. Relativity Media and Elliott Management declined to comment, according to Scott Tagliarino, a spokesman for both.

Relativity has helped finance movies including Fast and Furious, Hancock and Mamma Mia! according to a July 2009 statement from the company.

MGM, created in 1924, made films including The Wizard of Oz” and Ben Hur. The company sold many of its early pictures prior to its 2005 buyout by a group led by private equity firms Providence Equity Partners and TPG. It released one picture in 2009 and has a co-production deal with Warner Bros. on the planned film The Hobbit.

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