After several weeks of haggling over deal terms, Spyglass Entertainment is in the final stages of hammering out an agreement to take over the management of debt-ridden Metro-Goldwyn-Mayer, according to people familiar with the situation.
The parties have agreed on the major deal points, including how much Spyglass founders Gary Barber and Roger Birnbaum would be compensated in management fees and equity, but a few outstanding issues need to be resolved, said one of the people, who added that an agreement would be consummated shortly. However, the deal could still fall apart.
One sticking point had been the breakup fee that Spyglass would be paid should MGM decide to back out of the arrangement, said one person with knowledge of the negotiations.
Barber and Birnbaum would receive an ownership stake in a restructured MGM of 4% to 5%, said another person close the matter.
In a plan Spyglass presented earlier this summer to MGM’s steering committee of leading creditors — including Anchorage Advisors, Highland Capital Management and Davidson Kempner Capital Management — Barber and Birnbaum would run a scaled-back version of the studio as co-chief executives as part of a long-planned pre-packaged bankruptcy. Under a restructuring plan, MGM creditors would swap their debt for equity.
Spyglass, whose main financial backer is Cerberus Capital Management, would remain a separate company, continuing to produce its own slate of movies. The company recently co-financed the Steve Carell comedy “Dinner for Schmucks” with Paramount Pictures and DreamWorks, and last year’s “Star Trek” remake and " G.I. Joe” with Paramount.
Part of the Spyglass library, about 15 titles personally owned by Barber and Birnbaum that include such films as “The Sixth Sense” and “Seabiscuit,” would be folded into MGM’s own catalog of 4,000 movies.
It is unclear how much money Spyglass would need to make new movies at MGM and where the money would come from. Barber and Birnbaum have told MGM that they plan to slash overhead costs (about 450 people are still working at the studio) and produce a handful of movies each year, including James Bond sequels and two planned films with Warner Bros.’ New Line Cinema unit that are based on J.R.R. Tolkien’s " The Hobbit.”
MGM creditors, who are deciding the fate of the near-bankrupt studio, have been weighing various options for survival as a stand-alone company. Also under consideration have been proposed mergers with Summit Entertainment, the studio behind the “Twilight” movie franchise, and Lions Gate Entertainment. Also, Warner Bros. parent Time Warner Inc. has had a long-standing $1.5-billion bid on the table to acquire MGM.
MGM has been unable to pay interest on its nearly $4-billion debt since last fall. Recently, the studio’s debt holders agreed to a sixth forbearance of interest payments, which expires Sept. 15.