Lions Gate makes another run at MGM

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In a surprise move, Lions Gate Entertainment has made another merger proposal to MGM lenders, potentially upsetting a proposed prepackaged bankruptcy plan that would hand debt-holders about 95% of the studio, according to people close to the matter.

The development comes one day before Lions Gate is scheduled to square off in a Canadian court with dissident shareholder Carl Icahn.


Lions Gate’s proposal, which would give MGM lenders a 55% stake in the merged company, would combine Hollywood’s leading independent movie and television studio with one of industry’s oldest, but most financially crippled, studios with an extensive film library.

The proposed merger appears to be a defensive move on the part of Lions Gate management, which has been under assault by Icahn for more than a year.

MGM’s current bankruptcy plan calls for Spyglass Entertainment principals Gary Barber and Roger Birnbaum to take over the management of the studio along with a minority ownership stake of just under 5%. That plan still has to be approved by approximately 100 MGM lenders. The votes are due Oct. 22.


If the lenders end up favoring an alternative bid from Lions Gate or any other party, they’re on the hook to pay Spyglass a breakup fee of $4 million to $5 million.

The wild card in any scenario is Icahn. Although he’s been battling Lions Gate management, claiming the company has been poorly run, he has also signaled that he’d be willing to consider a merger between Lions Gate and MGM, which many industry observers consider logical.

At the same time, Icahn recently has been accumulating debt in MGM, fueling speculation that he might make another run at MGM.


[Update, Oct. 12, 6:32 a.m.: Icahn announced Tuesday morning that he supports the merger proposal.]

In June, Lions Gate was in merger talks with MGM after previously making a bid to buy the hobbled studio for $1.4 billion. Lions Gate was told its offer was too low.

-- Claudia Eller