The Tuesday ouster of Harry Sloan as chief executive of Metro-Goldwyn-Mayer Inc. underscores the continued turmoil at the debt-ridden independent studio since it was taken over by private equity owners five years ago.
MGM, which is struggling to refinance its $3.7-billion bank loan, will be overseen by a newly created “office of the CEO,” composed of production head Mary Parent, Chief Financial Officer Bedi A. Singh and Stephen F. Cooper, a restructuring expert who joins the Century City company as vice chairman.
A successful media entrepreneur who had never run a major studio, Sloan was recruited in 2005 by MGM’s consortium of owners, which includes Sony Corp. of America, Comcast Corp. and lead investors Providence Equity Partners and Texas Pacific Group.
At the time, Wall Street said that the investors had overpaid billionaire Kirk Kerkorian for the 80-year-old studio, which cost them $5 billion, despite MGM’s valuable film library of 4,000 titles that included the lucrative James Bond and Pink Panther movie franchises.
Since then, Sloan has failed to make MGM a viable competitor in Hollywood. The studio hasn’t released a movie since “Valkyrie,” starring Tom Cruise, last Christmas. In a much-ballyhooed move in late 2006, Sloan persuaded Cruise and his then-producing partner Paula Wagner to revive MGM’s moribund sister studio United Artists. But that misguided move proved disastrous, with Wagner forced out after less than two years.
After two days of intense meetings, MGM’s board voted Monday night to push aside Sloan -- exactly one year after the directors gave him a three-year contract extension. MGM said Sloan would be a nonexecutive chairman.
“This is an embarrassment for Harry Sloan, but it’s a big black eye for the private equity guys who came marching in with big numbers and were very arrogant,” media analyst Harold Vogel said. “Now they have a big loss on their hands and they don’t know how to fix it.”
Most industry watchers believe that MGM will not survive much longer as an independent studio and is likely to be sold to a bigger media company such as Time Warner Inc. or merged with another movie and TV studio like Lions Gate Entertainment Corp. Qualia Capital, a private investment firm headed by Amir Malin and Ken Schapiro, is actively looking at MGM, said a person with knowledge of the situation.
Parent, a former top executive at Universal Pictures whom Sloan hired in March 2008 to put MGM back in movie production, has been hamstrung by MGM’s financial woes and inability to raise sorely needed film funding.
With Sloan moved aside, Parent could have exercised an out in her four-year contract, but is opting to stay put -- at least for now.
“I believe we’re going to get through this,” Parent said. “And I’m really excited that Steve is on board to guide us.”
MGM officials said Cooper, 62, who has more than 30 years of experience as a financial advisor, would focus on improving the company’s balance sheet.
A co-founder and former chairman of New York-based Zolfo Cooper, Cooper is billed as a “turnaround industry pioneer.” As CEO of Enron Corp. from 2002 to 2005, he led the beleaguered company through its bankruptcy. According to published reports, he was less successful in turning around Krispy Kreme Doughnuts Inc. when he took the helm in 2005, and, more recently, Hawaiian Telcom Communications Inc., which filed for bankruptcy protection last year.
Cooper, who was not available for comment, has his work cut out for him at MGM. Three months ago, the studio hired investment banking firm Moelis & Co. to help restructure its heavy debt, which is owed to 140 creditors. MGM faces a debt payment of nearly $1 billion in June 2011, with the remainder of the loan due in 2012. Also, MGM has a $250-million revolving credit facility that matures in April 2010.
MGM, which employs about 450 people, has largely been funding operations out of cash flow from its library, which in fiscal 2009 generated more than $500 million.
Meanwhile, Parent has aggressively been putting movies into production. MGM’s next scheduled release, an $18-million remake of “Fame,” co-financed by Lakeshore Entertainment, is due out Sept. 25. The studio has no other movies coming out this year.
MGM has two films in post-production that are poised for release next year: “Cabin in the Woods,” a $30-million comic horror-thriller, and “Hot Tub Time Machine,” a $35-million comedy starring Jon Cusack. The studio began production this week on a $75-million comedy, “The Zookeeper,” starring Kevin James. MGM plans to begin production on a remake of “Red Dawn” in September.
It’s unclear whether MGM will have the financial wherewithal to co-finance two big-budget “Hobbit” movies with executive producer Peter Jackson and New Line Cinema/Warner Bros. and to produce the 23rd installment of the James Bond series.