MGM Sends Docs To Potential Buyers

Sponsor-backed Metro-Goldwyn-Mayer, the famed film studio that is considering selling itself, has sent confidentiality agreements to about 20 potential buyers, including Time Warner Inc. and News Corp., according to sources familiar with the matter.

MGM was acquired for about $5 billion in 2005 by a group including DLJ Merchant Banking Partners, Quadrangle Group, Providence Equity Partners, TPG, and media giants Sony Corp. and Comcast Corp. The consortium bought MGM from its majority owner Kirk Kerkorian.

The studio, now struggling under nearly $4 billion in LBO-related debt, has also sent confidentiality agreements to Lions Gate Entertainment Corp. and Sony, as a prelude to letting interested parties examine its books, the sources said.

Two of the sources said Peter Chernin, the former president of News Corp., also plans to take a look at MGM. It is unclear if Chernin had been sent a nondisclosure agreement yet. Chernin is a veteran Hollywood executive who left News Corp. in June when his contract expired. But he struck a production deal with News Corp.’s 20th Century Fox as part of his severance contract, which requires the studio to buy two films a year for six years.

MGM is considering an auction process, but its creditors would first like to see how likely bidders value the company, two of the sources said. The company is setting up a virtual data room to give bidders access to information. If initial valuations come in too low, the creditors might decide to stay away from an auction for now, the people said.

MGM, home to a renowned film library including the James Bond movies, said on Nov. 13 it was exploring a potential sale of the company as it struggles with looming debt payments. It could also form strategic partnerships or operate as a stand-alone entity, the company said.

In October, MGM secured a forbearance agreement with its lenders, gaining some breathing room and liquidity. The company missed an interest payment on Sept. 30.

MGM might not engage in the traditional process of sending out a sales prospectus to each potential bidder, relying instead on the data room and management presentations, two sources said. The studio, which has enlisted a restructuring specialist to help turn it around, faces debt obligations of $3.7 billion stemming from its 2005 buyout, plus payments on a $250 million revolving credit facility due April 2010.

MGM, News Corp., Sony and Time Warner declined to comment. Chernin and Lions Gate were not immediately available to comment.

—Anupreeta Das and Jui Chakravorty are New York-based correspondents for Reuters.