Lionsgate Proposes MGM Merger

LOS ANGELES: Lionsgate has proposed a merger with debt-laden MGM—which last week announced plans to combine with Spyglass Entertainment—and has received backing for the move from Carl Icahn, who owns shares in both studios.

Icahn, a signification stakeholder in the independent studio, has been railing against the Lionsgate management for months. This morning, the billionaire investor threw his backing behind Lionsgate’s merger proposal to MGM. "We believe that this combination of Lionsgate and MGM would enhance value for all constituencies and we believe this proposal as submitted is far better for MGM holders than the current proposal to combine MGM with Spyglass. In addition, we also believe such a combination transaction would enhance the value of Lionsgate shares."

In an SEC filing, Lionsgate said of its proposal: "the combined company would be owned by shareholders of the company and creditors of MGM…. The Company believes that Mr. Icahn, in addition to MHR Fund Management and Capital Research Global Investors, the Company’s three largest shareholders, are all supportive of the transaction."

MGM, meanwhile, is mulling Lionsgate’s proposal after having announced a reorganization plan that would see Spyglass Entertainment’s Gary Barber and Roger Birnbaum running the studio after it emerges from a Chapter 11 bankruptcy filing. The proposed plan, announced Thursday, calls for MGM’s more than $4 billion in outstanding debt to be swapped for approximately 95.3 percent of equity upon its emergence from Chapter 11. Spyglass Entertainment would contribute certain assets to the reorganized company in exchange for approximately 0.52 percent. The deadline for the company’s secured lenders to vote on the plan is October 22, 2010.