A proposed merger between two of Hollywood’s largest studios is in doubt after MGM Studios filed for bankruptcy protection Wednesday.
Vancouver-based Lions Gate Entertainment Corp. (NYSE:LGF) proposed a merger last month between it and the financially troubled MGM, which owns the James Bond franchise.
The deal came amid a brutal fight for control of Lions Gate between the company and its largest shareholder Carl Icahn.
Icahn, who is known for his activist investment style, expressed his support for the October merger between Lions Gate and MGM while at the same time maintaining a $7.50 per share offer to buy Lions Gate. Icahn is also a major shareholder of MGM.
According to a research note published last month by Cowen and Co., Icahn might own as much as $500 million of MGM’s approximate $4 billion debt.
In a statement issued Wednesday, MGM said its Chapter 11 bankruptcy plan had Icahn’s support.
The plan would see MGM’s lenders exchange the company’s $4 billion debt for most of the equity in MGM upon emergence from Chapter 11.
After it exits from bankruptcy, MGM said it “expects” to raise approximately $500 million in financing to fund its operations, including new films and TV series.
B.C. Supreme Court dismissed a petition on Tuesday that Icahn had filed against Lions Gate to block an earlier stock transaction that saw Lions Gate director Mark Rachesky increase his stake in the company.
According to court documents, Icahn claimed the transaction the board undertook “by stealth in the dead of night” was “...for no purpose other than to maintain their current stranglehold... over Lions Gate” and block his takeover attempt.
Judge John Savage ruled the transaction was valid.
“In my view, the Icahn Group complains of conduct which affects it not as a shareholder but as a bitter bidder,” Savage wrote.
Business in Vancouver could not reach Lions Gate to discuss either the petition or the MGM transaction.
At press time, Lions Gate’s shares up US$0.15 to US$7.45.