Despite Icahn, MGM Bondholders Favor Spyglass Deal

Bondholders feel they can control Spyglass – Icahn, not so much

MGM bondholders are continuing to favor a plan by Spyglass Entertainment principals Gary Barber and Roger Birnbaum to take over the debt-laden studio despite a last-minute play to merge with Lionsgate, according to insiders in the deals.

Debtholders led by JP Morgan’s John Miller and Alan Levine apparently feel comfortable with Barber and Birnbaum, and are worried that Carl Icahn is too much of a wild card to switch directions at this stage.

Icahn is indeed a wild card, but it’s hard to see how the lenders stuck underwater with $4 billion in MGM debt can miss the benefits of a deal with Lionsgate over Spyglass.

Spyglass will offer production experience. That’s about it.

Lionsgate offers a library of its own and a seasoned sales division experienced at monetizing it. It has a full-blown management team, a television production division, a movie production division, marketing, publicity and full-service distribution.

This is not a difficult equation, honestly.

Even the stubborn Icahn figured it out. He owns 33% of Lionsgate, and another approximately 13% of MGM debt. He’s also a major shareholder in Blockbuster, which after emerging from bankruptcy is likely to relaunch itself as a major digital player in the home entertainment space.

That’s a three-way punch that can boost MGM. And if Spyglass comes in, who will bring the capital to make new movies?

Meanwile Icahn is working overtime to influence the outcome of the MGM vote. On Thursday, he announced that he will buy debt from the studio’s creditors provided they vote against Spyglass' prepackaged bankruptcy plan.

But the strongarming may not work. Apparently the bondholders feel like they can control Barber and Birnbaum, and they know they can’t control a mercurial – and oft-times dangerous – corporate raider like Icahn.

The MGM vote is scheduled for Oct. 29, so we’ll know soon enough.