Icahn critical of possible Lions Gate, MGM merger

26-Jun-2010 • Bond News

Billionaire Carl Icahn said on Friday that Lions Gate Entertainment Corp, the company he has sought to control in a hostile takeover, has problems and should avoid merging with financially troubled Metro-Goldwyn-Mayer -- reports Reuters.

"Lions Gate's got its own problems. It's analogous to a couple not being able to pay the mortgage on their own home," Icahn told Reuters. "And instead of working on it, they go out and start negotiations to buy an overpriced mansion, and an overpriced mansion that is rumored to be haunted."

A source with knowledge of the situation said Lions Gate, the studio behind the hit "Saw" films and critically-acclaimed "Mad Men" TV series, has talked to MGM about a possible merger, but that no concrete offer has been made.

A competing proposal from Spyglass Entertainment to have its co-heads, Gary Barber and Roger Birnbaum, run MGM is believed by some in Hollywood to be the leading candidate to acquire MGM right now.

MGM's spokeswoman declined to comment on any companies that could be involved in discussions with the famed studio.

Another knowledgeable source said that independent studio Summit Entertainment, the studio behind the "Twilight" franchise, has discussed a possible merger with MGM.

If Summit and MGM did merge, it might mean a public offering of stock down the line, the second source said.

Lions Gate shareholders have until June 30 to decide whether to tender their stock to Icahn, who in recent weeks has raised his stake in the company from less than 19 percent to nearly 32 percent with his hostile bid of $7 per share.

"We think the (Lions Gate) overhead is way too high, the (selling, general and administrative expense) is way too high," Icahn said.

Lions Gate reported it spent $111 million last fiscal year on corporate overhead, down $11 million from the year before.

If Lions Gate pursues a merger with MGM, both Icahn and the company expect the activist investor would have to give his approval for a deal to be finalized.

"As they've said, they need us to go along with it," Icahn said.

MGM has a film library home to more than 4,000 film titles that includes the James Bond and Pink Panther franchises, but it was saddled with debt from a $2.85 billion buyout in 2005 by a group including four private equity firms and media companies Sony Corp and Comcast Corp.

In a private auction, Time Warner Inc put in a $1.5 billion bid for MGM in March, which was less than MGM had sought to raise and MGM has sought other offers since then.