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Relativity Media Seeks Controlling Stake in MGM
The deal involves buying up a part of the debt-laden studio from its major investors, and forcing bankruptcy
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Ryan Kavanaugh’s film company Relativity Media is aiming to take control of a major portion of MGM, which is in the process of trying to restructure a crushing $3.7 billion in debt, according to individuals involved in the transactions.
Relativity is not the only company to be circling the troubled MGM, with its rich library of historic movie titles as assets.
But the deal, confirmed by two individuals, would involve buying up a portion of the studio from the studio’s major investors, including Highland Capital, the Carlyle Group or Sequoia Group, and using control of that stake to force the company into bankruptcy.
Once MGM was in bankruptcy, Relativity could streamline the company’s $30 million per year operational costs, use its distribution networks for Relativity’s own films and operate without the current burden of creditors.
MGM has amassed a crushing load of debt, a portion of which comes due as early as 2010. Most of the $3.7 billion in debt, which incurs an estimated additional $250 million per year in interest fees, is due in 2012. The studio recently hired investment bank Moelis & Co. to help restructure the debt with a committee of creditors led by JP Morgan Chase & Co.
A spokeswoman for MGM denied that any kind of forced bankruptcy was an option to the company.
“We are looking at how to redesign the current debt structure -- reducing loans, reexamine current terms,” said Susan Arons. “We are not looking at bankruptcy as an option. Mary (Parent) is making movies, the studio is staying independent. No one is hiding from realities, but bankruptcy isn't in discussions.”
But MGM has not been directly involved in Relativity’s strategy, which has meant negotiating with investors, rather than current management.
Meanwhile, MGM’s management is engaged in attempting to restructure the debt, a process that would involve changing interest terms and forgiving some of it. That discussion, which will either conclude successfully or fail within the next few weeks, is currently ongoing among MGM’s creditors and owners.
That discussion is vastly complicated, referred to as a “Rubik's cube,” by one senior person involved. MGM has some 150 debtors at approximately 90 different institutions. They must agree among themselves to the terms of any restructuring.
The complexity of those conversations may well lead some investors to opt out of MGM for some reduced offer by an outside buyer such as Relativity.
MGM has been struggling since its reconstitution in 2006 to find a hit. Chairman Harry Sloan brought in Universal production whiz Mary Parent to chair the motion picture department. Parent has been greenlighting movies like the upcoming “Fame” and “Cabin in the Woods” but is still hamstrung by a lack of capital at the studio.
The studio has other movies in the works including two “Hobbit,” movies, a spy thriller adapted from Robert Ludlum's suspense novel "The Matarese Circle," starring Denzel Washington, and a new installment of "Robocop."
But, all of this will not be enough if the debt is not dealt with, and if some of the movies are not hits.
“The trick is the studio has to make money,” said one MGM executive, who declined to be identified.
Comments
Sharon Cannova Says
Most of what you here about MGM is true.
John Blythe Says
Turner Broadcasting does own a majority of the old MGM library, and the home video rights are held by Warner Bros. When Giancarlo Parretti bought the indie studio Cannon Group from Menahem Golan and Yoram Globus and renamed as Pathe, and merged into MGM in 1990, those assets from Cannon as part of the new merger, became properties of MGM. Unfortunately during Parretti's 'reign' as CEO, since he borrowed $1.3 billion from Credit Lyonnais to buy out Kerkorian, those loans immediately went into default in less than a year, as he smuggled away millions of dollars to himself, before later being convicted of fraud and tax evasion.
Here is part of the scoop as to why MGM was able to rebuild a new library. After Parretti was pushed out in 1992, and Credit Lyonnais foreclosed on the studio, this bank which loaned out to the entertainment industry financing independent studios since the early 1980's, were suing the bank for breach of contract, lender liability, equity subordination, illegally transferring film assets and records to other film companies, etc.
Many of these companies that are no longer in existance including: Epic Productions, Empire Pictures, Orion Pictures, Trans World Entertainment, Cannon Group and 21st Century Films (the company that Menahem Golan received as part of his severance, when Parretti fired him at Cannon in 1989, renamed Pathe) were all clients of Credit Lyonnais. When these companies experienced financial problems, and the bank corruptly shut them all down, they fraudulently took those assets, and put them all in MGM as one big 'package' to get the bulk of their loans back they foolishly gave Parretti, and because they had to sell MGM by 1997 under U.S. Banking Law, which Kerkorian eventually took back. This is why all of those MGM DVD's still retain these logos. It was a good idea to have MGM be able to rebuild its library, even those companies suffered consequences as a result.
The issue now is how much mismanagement has been done over the course of the last few years, and poor movie deals negotitated and completed, where it has moreso hurt and impacted MGM negatively, than positively. A majority of the films MGM has been distributing with Dimension Films has not been successful, nor helped its reputation. Over the course of the last few recent years, MGM's release of 'Valkyire' through United Artists was its only hit. It seems that the key question that needs to be answered is how long do you try to save one of the oldest and legendary studios in the film industry? How do you cut costs, and raised enough bond reserve payments, to get that $4.2 billion debt paid? I'm sure MGM can find a rational way to stabalize its finances, but it needs to first regain the trust of the market place. Trick now is for MGM's CEO Harry Sloan to figure out how to do it.
Mark Brack Says
We all know "Joe Mother" where the MAJORITY of the old MGM library rights reside - at Turner via Warners......... What we need is a powerful debt free MGM so that Mary Parent and whoever gets the company can make movies. A dead MGM is bad for Hollywood with all the belt tightening going on these days.
Has anybody thought of the fact that MGM may be cursed? After all the studio has been a basic yo yo since Loews was forced to divorce themselves from MGM in 1959. First the Bronfamans tried to make a go of it in the 60's then we had Kirk Kerkorian rape it in the 70's and 80's. He claims to have not been the cause of all its trouble - come on Kirk in your 90's you ought to be truthful and know you and that crushing debt you laid on MGM the last time you owned it - was really your way of getting richer off the name and getting rid of the studio you despise. Mayer must have dissed you when you were a greens keeper at MGM way back in the 30's??? in Culver City - huh Kirk if you're reading this????
Boomzilla Says
MGM does own (or more accurately its investors) the United Artists library, as well as the Orion and old American International Pictures libraries. There may also be some smaller ones that got packaged into MGM after Paretti (what a disaster) when Kirkorian took it back.
Joe Mother Says
Actually Warners owns most of the MGM library (everything pre-1986).
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