Indian Company Eyes MGM - Analyst Blog

Joining a queue of several suitors like Time Warner Inc. (TWX), Spyglass Entertainment Group, LLC, and Lions Gate Entertainment Corp. (LGF) to salvage the debt-ridden Hollywood studio Metro-Goldwyn-Mayer (“MGM”) is an Indian conglomerate. Sahara India Pariwar has put forward a bid to buy the debt of MGM for around $2 billion. This attempt would help bring Hollywood and Bollywood together.

 

If the deal comes through, the co-owners and producer of James Bond movie series, the Broccoli family, would get an unrevealed equity stake in the new company. The bid for the studio is not the maiden attempt by an Indian company, as Anil Dhirubhai Ambani Group's Reliance Entertainment was also in talks to buy the studio, though the transaction did not ultimately materialize.

 

Metro-Goldwyn-Mayer, which owns classics such as Gone with the Wind as well as the lucrative James Bond and Pink Panther series, has been at the mercy of its creditors for almost a year now after it failed to repay the debt it had inherited from its takeover by a private equity group that included Providence Equity Partners and TPG Capital as well as media companies Sony orp. (SNE) and Comcast (CMCSA) in 2005.

 

In July 2010, MGM was able to obtain an extension for debt repayment for the sixth consecutive time, which involves more than 100 creditors. However, time is running out for MGM, and if the legendary studio fails to get a buyer, the lenders would declare the studio bankrupt next month. The studio incurred this massive debt due to the delays of various movies for which it owns the right including the next James Bond movie and two Hobbit movies.

 

The fate of the Sahara India proposal is undecided as MGM is also in negotiations with Spyglass Entertainment. In September, the founders of Spyglass Entertainment, Gary Barber and Roger Birnbaum, signed a non-binding letter of intent for control of the studio as co-chairmen and co-CEOs.

 

The merger with Spyglass Entertainment will result in MGM's debt being converted to equity. The creditors are supposed to vote on this restructuring plan later this week. Earlier, the $1.5 billion bid by Time Warner for the studio was rejected on the grounds of being low.