Spyglass Emerges as Lead Candidate to Run MGM

[Blowfeld]

By MIKE SPECTOR And LAUREN A.E. SCHUKER

Spyglass Entertainment has emerged as the leading contender to run Metro-Goldwyn-Mayer Inc., said people familiar with the matter, as the beleaguered film studio races to restructure a roughly $4 billion debt load this summer.

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Spyglass co-heads Gary Barber and Roger Birnbaum would run the studio as co-chief executives under a plan being discussed with MGM's creditors, these people said.

The talks are continuing, and no final decisions have been made, the people said. Summit Entertainment, the studio behind the "Twilight" vampire-film franchise, also has been in discussions with MGM and its creditors, and remains a candidate to run the company, they said.

MGM, Spyglass and Summit all declined to comment.

Summit, which releases 10 to 12 films on its own annually, submitted a plan to MGM and its creditors outlining how the companies could merge. A merger of the two studios could mean an initial public offering down the line, the people said.

But Spyglass, which co-financed the recent hits "Star Trek" and "G.I. Joe," is the preferred choice of a group of hedge funds holding large amounts of MGM's debt, the people said.

Any deal would be executed in a "prepackaged" bankruptcy, in which a company lines up approval from many creditors in advance, with an eye toward spending less than two months in court proceedings.

Under the restructuring plan, creditors would swap their debt for nearly all the equity in a restructured film studio. Spyglass executives would get a slice of that equity, though the details haven't yet been ironed out, the people said. Because it is a smaller company, creditors would hold more equity in a deal with Spyglass than Summit, they said.

Spyglass co-heads Gary Barber, left, and Roger Birnbaum in May.

Messrs. Barber and Birnbaum of Spyglass impressed MGM's hedge-fund creditors during a recent presentation on how they would manage the studio. Their proposals included making a mix of low-budget and high-priced films, people familiar with the matter said.

That contrasted with a plan from MGM that contemplated up to $1 billion in new money to bankroll a slate of expensive blockbuster-type films. MGM's creditors have been cool to putting large amounts of new money into the studio, though some fresh capital will be needed.

Spyglass, an investment holding of private-equity firm Cerberus Capital Management LP, has sent a proposal to MGM's most influential creditors. They include J.P. Morgan Chase & Co., Anchorage Advisors, Highland Capital Management and Davidson Kempner Capital Management.

The two sides are involved in negotiations over details of the plan, and are pushing to get a deal done before a waiver on MGM's debt expires in mid-July, the people said. But MGM could be forced to seek its sixth waiver from creditors since November, they said.

Having Spyglass take the reins would likely spur a reshuffling of MGM's top management ranks, including Mary Parent, the studio's top film executive. She shares a new "office of the CEO" with turnaround specialist Stephen Cooper, who was hired by MGM's owners in August to restructure the studio. Mr. Cooper is expected to move on once MGM's restructuring is completed.

The discussions about a new management team come after an auction in which MGM failed to attract bids high enough to make creditors eager to sell the studio. Most suitors walked away from the bidding, leaving only a $1.5 billion offer from Time Warner Inc. That bid would pay creditors far less than what they are owed.

MGM's most valuable asset is its library of more than 4,000 films, including the James Bond franchise. But the cash-strapped studio hasn't produced many new films lately, causing the film library's value to decline and discouraging robust bids. The library's cash flow recently fell to $318 million from $524 million in fiscal 2007.

The uncertainty around MGM's future has wreaked havoc on its production plans. The next Bond movie has been put on indefinite hold. The director of two coming "Hobbit" films—potential blockbuster prequels to the "Lord of the Rings" trilogy—just resigned, citing MGM's restructuring woes.

Many holders of MGM's debt sold their paper at around 60 cents on the dollar amid the low offers for the studio. Hedge funds including Anchorage, Highland and Davidson Kempner scooped up the paper, and are now part of small group that holds more than a third of MGM's bank debt, people familiar with the situation said.

In March, the hedge funds intensified negotiations with MGM's Mr. Cooper and Ms. Parent about a streamlined bankruptcy plan that would hand creditors control of MGM. The hedge funds then began a Hollywood tour, meeting with the likes of former Warner Brothers and Yahoo Inc. head Terry Semel and former News Corp. executive Peter Chernin.

Mr. Chernin made clear he had no interest in running the studio full time, people close to him said.

MGM's struggles stem from the large amount of debt it took on after a leveraged buyout deal a few years ago.

The deal turned the studio over to private-equity firms Providence Equity Partners and TPG Inc., as well as media companies Sony Corp. and Comcast Corp.

Write to Mike Spector at mike.spector@wsj.com and Lauren A.E. Schuker at lauren.schuker@wsj.com

This story can be found at Spyglass Emerges as Lead Candidate to Run MGM

[Blowfeld]

Throwing this in here. Probably to be moved to the Bond 23 rumour section later.

Neill Blomkamp Rumored to Direct THE HOBBIT and Why No One Is Getting the Job Until MGM Gets It Together
by Matt Goldberg Posted:June 21st, 2010 at 12:56 am

I want MGM to sort out its financial mess not because it will put movies like The Hobbit and James Bond 23 back into production (although that would be nice), but so I won’t have to do every stupid Hobbit-director rumor that’s coming along. The latest rumor: TheOneRing reports Neill Blomkamp (District 9) is attached to direct the flick. Blomkamp joins directors David Yates, David Dobkin, and Brett Ratner as candidates rumored for the gig now that Guillermo del Toro has left the project. However, Warner Bros. and MGM’s top choice is Peter Jackson. I don’t buy TheOneRing’s story about Blomkamp directing, but they’re spot on about Jackson not wanting to direct The Hobbit and that’s why he hired del Toro in the first place.

Hit the jump for why Blomkamp or any other director isn’t being hired for The Hobbit at the moment.

While TheOneRing makes a strong argument for Blomkamp being hired, the truth of the matter is no one has the gig and no one (other than Peter Jackson) is going to get the gig until MGM gets its finances in order. The reason Jackson is an attractive hire isn’t just because he directed The Lord of the Rings, but because he’s already involved as a producer and co-writer. But no outside director can be hired because that would fall under a budget decision and MGM has no money. And even if a director did sign on, they’d be in the same predicament as del Toro when he left: there is no start date in sight. Directing The Hobbit is about as high-profile as it can get for a director, but it doesn’t matter when you’re doing endless pre-production and watch other projects pass you by as you wait for the greenlight.

So can we please just put the speculation on hold? I can believe that Blomkamp is on a shortlist. I believe that someone on that shortlist will get the job once the finances and rights are worked out. But until then, no one is attached to direct. Here, let me say it again: no one is attached to direct. The only one who could attach himself at this point is Jackson and he doesn’t want the job and I don’t blame him. In the meantime, rumors will keep spilling out of Middle-Earth.

[Kristatos]

The Wall Street Journal is a pretty reliable source, despite being a Murdoch paper.

[James]

I personally hope the delay spins out long enough for a new Bond to be the order of the day for Bond 23.

[Mazer Rackham]

Lions Gate is trying to make some noise but there are a lot of good reasons for Spyglass. I don't want to jinx it, so far it makes good business sense. One thing in their favor is they are not as flaky as Summit. And Lions Gate would have trouble pulling off any kind of deal. The Debt MGM has is just too toxic for them to withstand. Still nothing is impossible a this stage stranger things have happened.

We have talked before of the issues in play. As we know the investors who own the 4 billion in debt are looking at taking a major bath. Point blank they would be giving up and letting somebody else cash in on their investment. Alternatively they pony up a little more (comparatively) take control and cash in themselves. If they sold out to WB it would make me and a lot of other fans happy, not to mention Babs and Mikey, but from the investors point of view it would be a lose-lose situation. Even the offers of outside refinancing are shark deals gutting them.

If this does happen, there is a lot of dead wood at MGM the ax has to fall on. A lot of dead wood.
Put a deal together, go to court, come back in 2011 (maybe) with a fresher, leaner studio with modest financing behind it. Good things could happen.

But I seriously think the over 200m budget days for Bond are gone. Babs and Mikey will just have to start a paper route

[Mazer Rackham]

The Hobbites are excited about the possibility Jackson is being brought on to direct. Some speculation that it may jump-start the MGM financing issues.
With something like 30% of the gross promised to various parties it's a thinner and thinner piece of the pie for MGM. However if the Hobbit movies hold to form they rake in billions and sell home videos like hot cakes. A possible trade off to jump-starting the Hobbit is holding off on Bond for longer, speculation at this point but it is being talked about because of the smaller budgets projected. In a year with under half a billion for financing big projects and smaller movies, they may make only one big budget ($200+m) film a per year. In such a situation The Hobbit is sucking the oxygen out of the room for Bond.

I read some talking points were the speculation is EON could move production away from MGM, but with lots of red tape. It is not 1968 anymore with Saltzman and Cubby owning all the rights to Bond. Back then leapfrogging studios was a real possibility. But when Saltzman sold his half to the studio all that changed. There might be a clause for moving away from studio that fails to preform but MGM would still own half the franchise. So another studio might make it but MGM would still be getting half. Where does that make sense for any other studio to become involved under those circumstances?
Beside the Broccolis' have had a sweet deal for a very long time, double dipping their fees and paying themselves to make the Bond movies. I suspect that aspect of the relationship will under go stringent scrutiny in the near future.

Whenever a solution is settled upon you can bet on one thing, the Bond franchise will not be part of any bankruptcy proceedings. For a myriad of reasons chief among them if MGM were to put Bond on the Bankruptcy block the rights revert to someone else.

[FormerBondFan]

MGM needs to sell The Hobbit right to New Line so that it will be filmed.