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Waiting for MGM's Spyglass Deal

We're in the third act of MGM's melodrama: It's been a year since the studio ousted CEO Harry Sloan and started hunting for a buyer. No one was willing to spend the two billion dollars MGM wanted for its library, which becomes less valuable every day. So now, the finale: MGM's on the verge of announcing its bankruptcy and management plan, in the process of hammering out the final details right now with its 100 plus creditors. Before Labor Day we can expect a pre-packaged bankruptcy, which would eliminate the company's $4 billion in debt, leaving it with a valuation between $1.5 billion and $1.9 billion.

MGM Studios
MGM Studios

Spyglass Entertainment will take the helm to re-start production and try to eke out some value from the 4,100 title library. MGM will try to raise up to $500 million to finance new films. But unlike MGM's last try at production, it'll release all the new films through outside studios. We can also expect plenty of co-productions. MGM"s greatest assets now are the Bond franchise, which Sony has a deal to produce, and the Hobbit, which Time Warner's New Line is working on. It's possible that MGM will sell either of those assets, or the library's few other valuable titles, like "Robocop." (MGM's library may be huge, but it's considered one of the lowest quality libraries in Hollywood-- people just don't pay to rent or buy many of these movies.)

Critics are raising some major questions about the choice of Spyglass — it's co-chiefs Gary Barber and Roger Birnbaum have no experience managing a library, which will be a huge part of their new job. Plus, they're expected to get about four percent of the company without putting in any real equity. The fact that they've been behind some box office disappointments, like "Leap Year" and "Dinner for Schmucks" doesn't help their case.

So why did MGM end up with Spyglass? Hedge funds including Anchorage Advisors and Highland Capital Management, who hold much of MGM's debt are under water, and are unwilling to sell at a major loss and are holding out for some potential upside. A number of industry insiders, unwilling to go on the record, say MGM would have been better off going with Time Warner's $1.5 billion offer — they're already partnered on the Hobbit. Getting the Lion to really roar on its own again, after so many false starts, will be no easy task.

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