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MGM bid opens today; Reliance Entertainment may enter race news
15 January 2010

Anil Dhirubhai Ambani-controlled Reliance Entertainment is among the front runners  along with Lions Gate, Warner Bros' parent Time Warner, Liberty Media, and Twentieth Century Fox owner News Corp, who are likely to put in a bid for the legendry Hollywood studio Metro-Goldwyn-Mayer Inc. (MGM).

Non-binding bids for the Hollywood major are due today.

According to reports, after today's bids, MGM's financial adviser Moelis & Co. will recommend whether to have a second round of bidding or let MGM attempt to restructure its debt on its own.

If the bids are low or creditors don't agree to forgo some debt, the studio may go for a bankruptcy filing.

The winner will have to settle it out with a consortium of 140 creditors led by JP Morgan Chase, who expect to collect about $4 billion that they have lent to buy the studio.

In November, MGM said that it is exploring a potential sale of the company as it struggles to deal with looming debt payments and attempts to come up with a long-term business plan (See: Hollywood's MGM puts itself up for sale).

A credit default swap auction in October 2009 determined each dollar the company owed was worth just 58.5 cents - valuing it at around $2.36 billion.

The auction was held to determine how much insurers were required to pay when MGM technically defaulted on its loans by delaying interest payments, under a deal with creditors that lasts through 31 January.

The eventual winner would gain the right to make new James Bond movies, win half of the rights to the next two ''Lord of the Rings'' movies based on ''The Hobbit'' and snatch the studio from a possible bankruptcy filing.

The studio, known for such classics as The Wizard of Oz and Gone with the Wind and the James Bond and Pink Panther series, made only one movie in 2009, a remake of the 1980 musical Fame, because of looming financial troubles and increasing debt.

A sale would mark the latest change in ownership for a company that has been bought and sold countless times since it was founded in 1924.

The present owners, a consortium of investors such as Providence Equity Partners, TPG, Sony, Comcast, DLJ Merchant Banking Partners and Quadrangle Group, bought MGM in 2005 for $5 billion from a group including billionaire Kirk Kerkorian.

Although MGM got plenty of licensing fees and revenue from a library that includes 4,000 movie and TV titles, including such classics as West Side Story and Rocky, the studio failed to create a major new hit
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With the slowdown in economy experienced during the past two years and decline in DVD sales, MGM finds it difficult to continue producing new movies and making interest payments. Consequently, the value of its library also took a dive.

Time Warner is expected to make a bid because its movie division already owns the other half of The Hobbit and the entire Lord of the Rings trilogy. It had bid for MGM in the past, and Turner Broadcasting System bought and sold a portion of MGM in 1986, before Time Warner acquired Turner in the late 90s.

According to unconfirmed media reports, senior Anil Ambani Group officials are in touch with the studio heads of MGM and the bankers in Los Angeles last week.

Reliance Entertainment is looking forward to enhance its presence in Hollywood beyond its existing tie-up with Steven Spielberg's DreamWorks Studio.

The Anil Ambani controlled firm made its Hollywood entry in late 2008, amid the subprime mortgage crisis that squeezed the credit market and a growing feud between DreamWorks co-founders Spielberg and David Griffin with Paramount Pictures and its parent Viacom Inc. (See: Reliance Entertainment completes deal with Spielberg's DreamWorks).

Following this, last year it had struck separate deals with seven Hollywood production houses run by some of the top actors, including George Clooney, Brad Pitt and Tom Hanks (See: Reliance Big Entertainment in new Hollywood deals).

The Anil Ambani Group firm also had deals with Julia Roberts' Red Om Films and Brett Ratner's Rat Entertainment.





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MGM bid opens today; Reliance Entertainment may enter race