The votes are in: MGM's hundred-plus creditors have approved a pre-packaged bankruptcy plan, according to sources close to the situation. This is big news—it means that creditors opted for this plan instead of Carl Icahn's proposal to merge Lionsgate and MGM. Half the creditors controlling more than two-thirds of the $4 billion plus in debt must approve any bankruptcy plan. But sources tell me that creditors "overwhelmingly" approved the bankruptcy.
Metro-Goldwyn-Mayer Studios
Still, the story is not yet over. Carl Icahn has pushed for the merger with Lionsgate, hoping to create a new company worth about $3.5 billion, when placing a valuation of about $1.8 billion on MGM.
Lionsgate has pushed for the merger as well, saying it would generate $100 million plus in annual cost savings, and would allow both companies to best maximize their library. Icahn has bought up about $500 million of MGM's debt—that's roughly 13 percent of the $4 billion in debt outstanding. And this week he went shopping for more debt, offering other creditors a premium.
But this news that Icahn was working to shore up enough MGM debt to block any deals pushed the two funds behind the Spyglass deal—Anchorage and Highland—to spring into action. Sources tell me Anchorage and Highland bought up additional debt over the past few days—also paying a premium—in order to keep MGM out of Icahn's hands.
So why would creditors want the Spyglass deal instead of the Lionsgate merger? It may all come down to valuation: A restructured MGM under Spyglass management would be worth north of $2 billion. As I mentioned above, the MGM piece of a company merged with Lionsgate would be worth just $1.8 billion.
Despite this news, the battle is not yet over—Icahn may have other plans up his sleeve. And as several people close to the situation have reminded me, there's no reason Icahn won't try for a Lionsgate merger after MGM has filed for Chapter 11.
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