Icahn ready to spend $400 million to push Lions Gate-MGM merger


Billionaire investor Carl Icahn is ready to spend more than $400 million to push forward a merger between two of Hollywood’s biggest independent movie studios.

Already the largest shareholder in Lions Gate Entertainment Corp., Icahn offered to pay 45 cents on the dollar Thursday to buy $963million of Metro-Goldwyn-Mayer’s $4 billion in debt.

Along with the roughly $500 million worth of debt he already owns, that additional amount would make Icahn one of MGM’s largest creditors — and that group is determining the future of the financially crippled studio.


Icahn has said he supports last week’s bid by Lions Gate to merge with MGM. Under the deal, he would be given two of 10 seats on the combined company’s board, allowing him and his son Brett, who has been actively involved in his father’s investments, to play a key role at what would become a major Hollywood studio.

MGM’s largest creditors, led by Anchorage Advisors, wants to file a preplanned bankruptcy petition that would allow them to convert their debt into equity to own 95% of a restructured and scaled-back MGM. As part of the plan, top Spyglass Entertainment managers would run the operation and produce new movies.

But the creditors first need two-thirds of MGM’s debt holders to vote for the proposal by Oct. 29. If Icahn, who strongly opposes the Spyglass deal, prevails in his offer to buy the IOUs, he would control more than one-third of the debt and be able to block the deal.

In a statement Thursday, Icahn called the Spyglass plan “a prescription for disaster.”

His effort to block it, however, could plunge the studio further into financial paralysis.

For the last year, MGM has struggled to develop a plan to escape from its debt — it no longer can pay the interest on it — and become a functioning studio again.

Those accepting Icahn’s deal, thus rejecting a Spyglass arrangement, would get their money over the first two weeks of November on a first-come, first-served basis.

Meanwhile, a fierce lobbying war is likely to erupt between the Icahn-Lions Gate camp and the Spyglass contingent to win the support of undecided creditors.


Icahn’s offer of 45 cents on the dollar is close to the price at which MGM debt has recently been trading, people familiar with the situation said. The debt is no longer worth its face value because the studio can’t afford its interest payments.

“For some creditors that don’t want to end up with an equity position in a private company, the Icahn offer could give them a sure exit path,” said Ben Mogil, a media analyst with Stifel Nicolaus. “However, the offer isn’t enough of a premium to make some people run.”

Lions Gate’s merger proposal would give its shareholders a 45% stake in the combined company and MGM creditors the rest, a person familiar with the situation has said.

Icahn had criticized Lions Gate’s attempts to acquire or merge with MGM earlier this year, at one point likening it to “a couple not being able to pay their mortgage on a little house and starting to negotiate on a big, overpriced mansion that’s rumored to be haunted.”

He has changed his mind, however, and now not only supports the deal, but is said by people familiar with the matter to approve of a plan for Lions Gate Chief Executive Jon Feltheimer and Vice Chairman Michael Burns to run the combined company.

He has been critical of their management of Lions Gate and is still in the midst of an attempt to take control of the company, after which Icahn previously said he would replace them.


Icahn’s current tender offer to buy all of Lions Gate’s stock that he doesn’t control for $7.50 a share expires Friday. However, it’s possible he will extend that deadline, given the current situation with MGM, a person familiar with the matter said.

In addition, Icahn is awaiting a verdict in a lawsuit he filed against Lions Gate over a recent financial transaction that diluted his holdings.