By Devin Zydel on 2010-02-16
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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