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MGM Bidding Begins

MGM is waiting for a buyer to swoop in and save it from bankruptcy. Bids were technically due today at 2 pm eastern, and they're starting to trickle in. The historied studio has struggled with declining DVD sales and its attempt to re-start production with its latest movie "Fame" was a bomb. A dozen studios and private equity players signed non-disclosure agreements to evaluate the deal and now about six bids are expected.

As of now Time Warner, considered the top contender, hasn't submitted its bid, but it's planning to. Lionsgate submitted a bid earlier today. Just this afternoon News Corp resolved issues with the NDA —it had refused to sign the NDA because of concerns that it was too constricting. Sources tell me that today MGM loosened the restrictions on the NDA -- News Corp is expected to sign it today, and begin due diligence shortly. That means Rupert Murdoch's company is unlikely to make a bid for another day at least.

John Malone said last fall that he'd look at the MGM asset - no word on whether he's submitted a bid. Reliance Big Entertainment's Anil Amani is a rumored bidder - he invested in Steven Spielberg's DreamWorks Studios. But sources tell me he's not going to bid, but he did sign the NDA so Reliance could check out the asset. Though Peter Chernin is also a rumored bidder, sources close the situation tell me he's not bidding - he's off on vacation right now.

How much is MGM worth?

Bids are expected to come in between $1.5 and $1.85 billion. MGM owes bank lenders $3.7 billion dollars, and MGM's bank debt has been trading around 60 cents on the dollar, so well over $2 billion. Back in 2004 Sony, Comcast, TPG and Providence Equity Partners took MGM private for $5 billion in cash and debt. The deal ended up being a big mistake because the value of content libraries has plummeted.

MGM's 4,000-film library throws off about $280 million in annual revenue. That's down from $450 million a year back in 2008, and that number will continue its steep decline. The DVD business is continuing to contract, and industry sources tell me that MGM's library is so old, that with a dozen exceptions, it's much harder to market these titles than most studios’ libraries.

A buyer would also win the valuable James Bond franchise and half the rights to the two "Hobbit" movies that Time Warner is producing. There's no question that Bond is the most valuable part of the company. A couple people have suggested that a buyer could offer $500 million for the Bond franchise alone.

The bids are trickling in. The problem is that MGM isn't a "must-buy" company. Nobody *needs* it so MGM doesn't have a lot of leverage. MGM could end up filing for bankruptcy and continuing the auction process while it's in Chapter 11.

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