Lionsgate has a message for Metro-Goldwyn-Mayer’s creditors — don't jump into bed with Spyglass.
The studio claims that by merging with MGM and slashing staff, it can save the company $100 million a year in overhead. It unveiled details of its 11th hour bid in both a letter to MGM on Monday and in Securities and Exchange Commission filings.
Under the proposal, 174 staff people, or about 17 percent of the work force at both companies, would be let go. Overhead costs would be slashed to between $166 million and $171 million for MGM.
In its first year, Lionsgate said, the company would operate at a loss but would began to have a positive pre-tax cash flow by 2012.
Lionsgate would assume roughly $1.1 billion of MGM’s over $4 billion debt, and the studio’s CEO Jon Feltheimer would take over as chief executive of the combined company. MGM would appoint four members of the new company’s 10 person board, with three others coming from Lionsgate and the remaining members being independently appointed.
As TheWrap has previously reported, under Lionsgate’s offer, the over 100 MGM creditors would receive a 55 percent stake in the combined company. The companies would release 16 movies a year, including such tentpole films as “The Hobbit” and James Bond.
The timing of the disclosures is meant to influence the outcome of a vote next Friday on a plan that would see Spyglass heads Gary Barber and Roger Birnbaum take control of the company after a prepackaged bankruptcy.
MGM is urging its creditors to stick with Spyglass. In a letter sent to noteholders Monday morning, the studio said that it had reservations about Lionsgate’s proposal, among them the ongoing legal battle for control of the company taking place between billionaire investor Carl Icahn and the studio’s board.
In an about face, Icahn has thrown his weight behind Lionsgate’s merger proposal.
MGM also stressed that much more due diligence has to happen before a merger could take place with Lionsgate, according to an individual with knowledge of the notes contents. In contrast, the Spyglass proposal is more comprehensive and would have a more accelerated pace, MGM’s management argues.
Further, Spyglass’ offer is binding, while the Lionsgate proposal is a non-binding one, MGM argued.
MGM may find a receptive audience among the bondholders. TheWrap has learned that debtholders led by JP Morgan’s John Miller and Alan Levine feel comfortable with Barber and Birnbaum, and are wary of getting on board with an Icahn endorsed plan.
Lionsgate claims that it has the wherewithal to better exploit and monetize MGM’s library. It said it would generate additional revenue by developing television properties based on MGM’s intellectual properties and brands. It also said that combining the two studios libraries would lead to significant cost savings.