Ryan Kavanaugh’s Relativity Media has put in an offer to finance MGM movies with a $500 million fund, according to two knowledgeable individuals.
Kavanaugh made the offer a week ago, even as the sale of MGM increasingly appeared to be a failed auction, with bids from Time-Warner and Russian billionaire Len Blavatnik submitted but not accepted by the company’s debt-holders.
Time-Warner has bid $1.5 billion for the studio, and Blavatnik has proposed a restructuring deal that would include cash. Neither bid has been accepted, and MGM’s debt-holders have not appeared to be close to accepting either of them. They had sought about $2 billion for the studio.
A scenario in which no bid is accepted has encouraged outside investors like Relativity, which proferred its proposal formally last week after circling the idea for several weeks.
The fund would finance movies like "The Hobbit" and the Bond series, which have been idling for months despite their huge revenue potential and ardent fan base.
Kavanaugh’s proposal would envision Relativity’s growing production team to be put at the service of MGM chairman Mary Parent. Unlike Relativity’s deal at Universal, where the financier puts funding into the studio’s slate, Kavanaugh proposed overseeing production, providing funding in return for co-ownership of the films produced.
The offer comes as MGM management has presented a "standalone plan" that would be an alternative to selling the studio. That plan would require financing of $1 billion to the next 3-5 years.
Last Thursday, MGM management led by co-chairmen Steven Cooper and Parent presented lenders including Highland Capital, Anchorage and JP Morgan with a plan to continue to operate the studio as an independent entity.
They urged the lenders to allow outside financiers to bring major funding into the studio, rather than to continue to make mid-level movies with mid-level budgets.
"The middle ground is disastrous," one senior executive reportedly told the lenders. "You have to do it right or not do it at all."
The executives did not present specific movies they intended to make, but each division made the case for a standalone option. In addition to Cooper and Parent, the television chiefs Jim Packer and Gary Marenzi, and home entertainment chief Eric Lomis.
The lenders may use the financing offer as a lever to push Time-Warner’s bid higher.
And with the door open to outside financing, other former bidders such as Amir Malin’s Qualia Capital or even Blavatnik may want to step in with funding for filmmaking at the studio, which has ground to a halt for months.