MGM Holdings Inc. (MGMB), the Hollywood studio that exited bankruptcy in 2010, is seeking to complete an initial stock sale before the October release of its next James Bond film, a person with knowledge of the situation said.
MGM said in July it submitted a confidential IPO filing to regulators, in a process that lets the owners gauge potential interest before moving ahead. The rules suggest the Beverly Hills, California-based studio would need to release a prospectus this month to complete the IPO before the film’s release and benefit from publicity surrounding the potential blockbuster.
“There’s an expectation of what the box office is going to be,” Jay Ritter, a University of Florida finance professor who studies IPOs, said in an interview. “By going out before the release, the sellers can get what’s expected and have investors deal with what it actually turns out to be.”
In Hollywood, speculation about when, or if, the IPO moves forward rivals anticipation for the movie, the studio’s biggest recent release. The filing may also attract the interest of potential buyers for MGM, which emerged from bankruptcy after being taken over by creditors in November 2010.
“Skyfall,” based on the 007 character created by British spy novelist Ian Fleming, opens starting Oct. 26 in Europe and Nov. 9 in the U.S.
MGM submitted its preliminary registration under the Jumpstart Our Business Startups Act, which lets companies with annual sales of less than $1 billion file confidentially with regulators. The law, enacted in April, requires the filings be made public 21 days before starting a road show -- a process usually lasting about two weeks -- and completing a sale.
The JOBS Act was intended to make IPOs simpler and cheaper for startups and small businesses by reducing the time and paperwork, according to a White House statement issued when the bill was signed in April. Companies that have used its provisions include the U.K. soccer team Manchester United Ltd., which sold a 10 percent stake on Aug. 9 to raise $233.3 million after pitching itself as an “emerging growth company.”
“The confidential filing under the JOBS Act was designed specifically for emerging growth companies,” said Sam Hamadeh, chief executive officer of PrivCo Media LLC, a New York firm that tracks data on closely held companies. “It was designed for much smaller companies than MGM.”
In addition to raising money for the company, a stock sale would provide a potential payday for MGM’s owners, including alternative credit investors Highland Capital Management LP, Solus Alternative Asset Management LP and Anchorage Capital Group LLC. They converted debt into equity during MGM’s bankruptcy.
Billionaire Carl Icahn agreed in July to sell his 25 percent stake back to the company for $590 million, a sum that values the studio at $2.36 billion. That suggests the studio’s owners expect to receive more, either in an IPO or a sale.
Pricing may determine whether MGM moves forward with the IPO or weighs any offers, said a second person, who sought anonymity because the process is private.
MGM, then struggling under debt from a $5 billion buyout, put itself up for sale in early 2010, attracting bids from Lions Gate Entertainment Corp. (LGF) and Time Warner Inc. (TWX), people familiar with the situation said then.
An official for Vancouver-based Lions Gate, which has since purchased “Twilight” producer Summit Entertainment, had no comment. Paul McGuire, a spokesman for Warner Bros., said the studio in Burbank, California, declined to comment. Jayna Zelman, an outside spokeswoman for MGM, said the studio had no comment.
The U.S. Securities and Exchange Commission bars companies from advertising IPOs. Offerings are made to the public only by way of a prospectus.
MGM and Sony Corp. (SNE), the production and distribution partners on “Skyfall,” face no such restrictions on promoting the movie, a major release certain to generate reviews and other articles that put a spotlight on the studio’s prospects.
“You’d want to price it when there’s a lot of TV advertising around the picture,” Hamadeh said.
That suggests MGM would seek to complete the offering by Oct. 24 or 25, said Hamadeh. If that’s the case, the studio will likely reveal proposed terms later this month, he said.
JPMorgan Chase & Co. and Goldman Sachs Group Inc. are managing the offering, people familiar with the arrangements said in July.
“Skyfall” is one of two major MGM films this year. “The Hobbit: An Unexpected Journey,” the first of three movies based on J.R.R. Tolkien’s book, is scheduled to reach theaters on Dec. 14, according to IMDB.com. Time Warner Inc. (TWX)’s Warner Bros. is MGM’s partner on those pictures.
“Quantum of Solace,” the most recent film about British secret agent 007, took in $586 million following its release in 2008, according to Box Office Mojo, an industry researcher. “Casino Royale,” the first to feature Daniel Craig as Bond, was released in 2006 took in $594 million in global sales.
Expectations for “The Hobbit” stem in part from Warner Bros.’ “The Lord of the Rings” franchise. The movies also were based on Tolkien books and feature many of the same characters and actors who will appear in “The Hobbit.” Peter Jackson also returns as director.
The three “Rings” movies averaged $971 million in worldwide sales, with more than half coming from outside of the U.S. and Canada, according to Box Office Mojo.
Leading up to the new Bond film, MGM will release a 50-year anniversary collection of 007 DVDs on Sept. 25. To build demand, the studio took old discs off the market during the second quarter, contributing to a 34 percent decline in revenue to $128.4 million from a year earlier, according to a midyear statement at the company’s website.
With few releases, lower operating costs and debt erased through bankruptcy, MGM reported second-quarter profit tripled to $42.6 million despite the drop in sales. The company finished the quarter with no debt and $274.8 million in cash. It has since borrowed $295 million against a credit line and used cash on hand to repurchase Icahn’s stake.
The company lists seven films in the works through 2014, all co-productions to be distributed by other studios. In addition to Bond and “The Hobbit,” the slate includes “G.I. Joe: Retaliation,” a remake of the 1980s hit “Robocop” and “Hansel and Gretel: Witch Hunters.”
The studio is mining its library of about 4,100 films and TV shows for new projects. MGM Television announced on Aug. 28 that it partnered with former “American Idol” executive producer Nigel Lythgoe to create a TV series based on the 1980s film “Fame,” about teenagers who attend a New York high school for performing arts.
MGM also operates the MGM and Impact cable TV channel and is a partner in Epix, a premium movie channel featuring its films and titles from Viacom Inc. (VIAB)’s Paramount Pictures and Lions Gate Entertainment Corp. (LGF) On Sept. 4, Epix announced a multiyear agreement to offer movies online through Amazon.com Inc. The channel already streams pictures through Netflix Inc. (NFLX)
Even with those initiatives, MGM’s challenge is convincing investors it has enough potential hits to succeed in the boom-and-bust entertainment business.
“We don’t think this is a slam dunk,” Hamadeh said. “It’s just not the kind of vehicle investors look for.”
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