Lionsgate drop out of MGM auction

The longshot potential marriage between MGM and Lionsgate is officially off, after Lionsgate bailed out of the bidding and left only two potential partners -- Time Warner Inc. and Len Blavatnik's Access Industries.

Lionsgate pulled the plug Thursday after MGM reps asked Lionsgate to raise its bid, believed to be in the $1.3 billion to $1.4 billion range, says Variety.

Lionsgate and MGM declined to comment.

Given its stated strategy for "not paying retail" and its own bitter battle with Carl Ichan, Lionsgate's exit wasn't a huge surprise. Icahn's repeatedly questioned the viability of Lionsgate bidding for MGM, asserting that it lacks the financial firepower to do so. Earlier this week, analyst Matthew Harrigan of Wunderlich Securities called Icahn's hostile takeover attempt an "eleplant-sized distraction" for Lionsgate.

The departure of Lionsgate from the MGM bidding increases the odds that MGM's 140 debtholders will decide to blow off the two remaining bidders since their offers also have been described as well below expectations. Instead, MGM could recapitalize through investment bank Qualia Capital with a cash infusion and a debt-to-equity transaction that would allow MGM to remain as a stand-alone entity.

The Lionsgate withdrawal comes with MGM's debtholders split into two camps - one that wants to accept the best offer; and the other that's seeking to prolong the process in hopes of keeping the storied studio alive. A person close to the situation said MGM's asked its lenders to extend the forebearance on debt payments until mid-May.

Lionsgate's in the midst of an extended PR campaign against Icahn, who's attempting a hostile takeover for the 81% of Lionsgate that he doesn't own. Liosngate has called Icahn's $6 a share offer "woefully inadequate."

Lionsgate stock was up a nickel to $6.30 a share in trading Thursday.

A person close to the situation said the Icahn imbroglio was unrelated to Liosngate's decision to bail out of the MGM bidding. That source indicated that the decision was consistent with Lionsgate's traditional strategy of opting for lower-priced opportunistic acquisitions.

The remaining binding offers for MGM are believed to be in the $1.5 billion range, far below the $2 billion threshold price sought by MGM and its debtholders. The first round of bidding generated six non-binding offers, including bids from Liberty Media Corp. and Elliot Management, but declining DVD revenues have cooled interest in acquiring the 86-year-old studio.

MGM put itself up for sale in November. It acknowledged earlier this week that it had received mutliple offers but said that it would take several more weeks to decide whether to accept one of the bids.

At the same time, MGM also announced that it's expecting to work with its lenders to extend the existing forbearance period for payment on its bank debt, which ends March 31. The lenders have allowed MGM to skip monthly debt payments going back to September.

MGM carries at debt load of $3.7 billion. It also plans to seek a forbearance agreement for its revolving line of credit, for which a payment is due April 8.

MGM's assets include its name and logo, the United Artists operations, a library with more than 4,000 titles, the James Bond franchise, half of the Hobbit franchise and a barebones film and TV operation. Its first title in more than six months, raunchy comedy "Hot Tub Time Machine," opens Friday at 2,754 playdates amid muted expectations.

Time Warner's been viewed as the most likely buyer for MGM, since it would be able to exploit the film franchises. For Blavatnik, buying MGM would establish him as a certified showbiz player, but one who would probably sell off the rights to James Bond and the Hobbit.

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