First Bids in MGM Auction Expected Soon

How’s the modern day “data room” work? Forget the locked conference room in a law firm, where the dealmakers of old used to pour over reams of facts, figures and assumptions while contemplating whether to bid for a company. MGM, the fabled but debt-hobbled studio, has set up an online site with its data and is parceling out access as it prepares to launch an auction pressed by its debt holders.

A first round of bids are expected shortly after Thanksgiving from companies that have been given access to the online site – so far that’s Warner Brothers(TWX) and Fox (NWS), according to a source with knowledge of the bidding. But even if Warner and Fox submit bids, those bids aren’t likely to be the end of the MGM drama. Instead, holders of the studio’s $3.7 billion in debt are expected to use what are expected to be all-cash bids from those studios as the starting point in their decision as to the “strategic alternatives” they choose to take. An MGM spokeswoman did not return requests for comment.

MGM said on Nov. 13 that it was “beginning a process to explore various strategic alternatives, including operating as a standalone entity, forming strategic partnerships and evaluating a potential sale of the company.” It also said that it had received an extension from Dec. 15 to Jan. 31 of the forbearance agreement from its lenders that has allowed MGM to postpone debt payment that threatens to throw the studio into bankruptcy. Sources with knowledge of the online data room say that MGM and its investment bankers haven’t as yet opened access to the wide range of parties that might consider bidding on the company, instead choosing to see how high competing studios might value the company. The studios are expected to value the company on the basis of its 4,100 film library and the rights to the James Bond, Pink Panther and other franchises.

Getting a potential price tag for the studio would enable the 140-odd debtor group to determine whether they might hang onto the studio or launch a formal auction process.
At least one private equity fund, Qualia Capital, is said to be interested in joining the bidding but would do so with a structured plan that would include injecting some capital into MGM, converting some of its debt into equity and operating the company as a standalone venture n hopes of increasing its value for a sale further down the road. Another studio, Lions Gate(LGF) is also said to be interested in taking a look at MGM’s financials and might try to structure a bid. Lions Gate declined comment. Media dealmaker John Malone(LMBIA) has said he’d like to look at the data. But the Liberty Media chairman says he isn’t likely to bid on the entire studio.

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