I have been watching the saga of the once mighty MGM, which, struggling with $3.7 billion of debt, said in November it was exploring a potential sale of the company. At the time, its other options included operating as a stand-alone entity or forming strategic partnerships. Now, close to six months later, we can see the possible formation of a final decision on what to do with all those great old films in it's massive library. MGM's debt mostly stems from its 2005 buyout for $2.85 billion by a group including four private equity firms -- Providence Equity Partners, TPG, Quadrangle Group and DLJ Merchant Banking Partners, a unit of Credit Suisse -- and media companies Sony Corp and Comcast Corp. This buyout obviously didn't end up as planned and the downturn in the global economic picture certainly didn't help the deal's fortunes. At one point, MGM had earlier this year even considered a prepackaged bankruptcy along with a sale.
Now comes the word that Time Warner, late Monday afternoon, finally submitted it's much rumored all-cash $1.5 billion offer for Metro-Goldwyn-Mayer Inc., joining two other known bidders, independent studio Lions Gate Entertainment and industrialist Len Blavatnik's Access Industries. MGM declined to comment on the specifics of the offers other than to say in a statement that the company had received "a number of bids as part of its ongoing process of exploring strategic alternatives, which include continuing to operate as a standalone entity and evaluating a potential sale of the company." MGM said it will evaluate all the bids over the next several weeks, while working with its lenders to extend the current forbearance period for paying interest on its $3.7 billion bank debt, which ends March 31, 2010. Additionally, MGM is hoping to strike a (different) forbearance agreement for its separate $250 million revolving credit facility with JP Morgan Chase, which is due in full on April 8. What a mess! Although the exact amounts of the offers are not binding, these current bidders were required to demonstrate how they would finance a purchase of MGM, said a person close to the situation. Since MGM was first put on the sales block last fall, a number of suitors have dropped by the wayside, including, most recently, John Malone's Liberty Media and hedge fund Elliott Associates, which backs Ryan Kavanaugh's Relativity Media.
This current Time Warner bid is the deal that makes most sense to this observer. MGM has a renowned film library, home to the very popular James Bond movie franchise and other fine gems, but has been struggling to create new hits as sales of DVDs shrink and people access more of their entertainment online. Time Warner has this weak spot of MGM covered quite nicely, they continue to crank out the hits and also have a (semi) forward thinking strategy (cable, fiber-optic, pay-per-view, etc.) to take advantage of the trend to an all digital universe. We won't have to wait much longer to see how this situation works itself out. What do you think of this potential marriage of partners (and film libraries)? Does it make financial sense to you? Please feel free to email me and let me know your thoughts, as always, I am happy to respond...
