The step was a significant move toward resolving the financial tangle that has enmeshed the debt-ridden studio and paralyzed operations for the past year.
Under the proposal, Barber and Birnbaum's companies would receive close to 5 percent of MGM — .52 percent for Spyglass plus 4.17 percent toward varying entities — and take over the company from current CEO Stephen Cooper, who serves with Mary Parent and Bedi Singh.
Most significantly, MGM's lenders moved a step closer to accepting a structured bankruptcy for the cash-strapped studio.
In a meeting with lenders on Wednesday, the Spyglass co-heads walked 100 debt holders through their plan to revitalize MGM's operations and turn the page on its recent financial problems.
The studio announced on Thursday that it had begun collecting votes from its secured lenders on Barber and Birnbaum’s proposal.
Their pitch calls for lenders to exchange their claims on the outstanding debt for an approximately 95.3 percent equity stake in MGM once it emerges from Chapter 11. In exchange for contributing certain assets, Spyglass Entertainment gets an approximately .52 percent share of the reorganized company, the studio said.
In addition, two Spyglass affiliates – Cypress Entertainment Group, Inc. and Garoge, Inc. – will merge with MGM. The stockholders of Cypress and Garoge will receive approximately 4.17 percent of the reorganized company.
MGM has a tangled web of creditors, but only holders of secured debt as of Oct. 4, 2010, can vote on Thursday's proposal. They have until Oct. 22 to vote on the plan, but the studio hinted that deadline could be extended.
The bankruptcy would be completed 30 days or so after the vote, meaning that MGM might be free and clear to operate by December.
The pair plan to take the reins once the bankruptcy is complete. Ken Schapiro, of private equity firm Qualia Capital, is reportedly in talks to become chief operating officer once Birnbaum and Barber take over.
In heading one of Hollywood's oldest and most revered studios (the producer of such Golden Age classics "The Wizard of Oz" and "Gone With the Wind"), Birnbaum and Barber can point to a series of successes as independent producers. Among its recent hits, Spyglass co-produced "Dinner for Schmucks," "Get Him to the Greek," and "Star Trek."
Word of the reorganization (which essentially amounts to putting the home of Leo the Lion into receivership) had been leaking out for several weeks, but this is the first time that the studio has publicly shared details.
MGM has been trying to attract a buyer while laboring under some $4 billion in debt for much of the past year. Production has ground to a halt while the studio tried to find a buyer, and the staff has been reduced to a shadow of it what it had been.
In September, MGM asked for and received its seventh reprieve on nearly $450 million in debt and interest payments.
If their plan goes through, Birnbaum and Barber will have succeeded where others have failed.
MGM boasts a library that numbers over 4,100 titles, but it has struggled to attract interest from potential buyers throughout much of the past year. Lionsgate and Len Blavatnik's Access Industries were rumored to be circling the company, and Time Warner made a $1.5 billion offer.
The studio's financial problems have put production on several high-profile projects such as the next James Bond film and "The Hobbit" in limbo. Filming is expected to gear up with the new leadership.