Metro-Goldwyn-Mayer Inc has replaced its chief executive, Harry Sloan, with a team that includes a turnaround expert and its production boss, Mary Parent, as the storied Hollywood studio grapples with reducing a high debt load.
MGM has a renowned film library that includes perennial favorites such as James Bond movies, but has been struggling to create new blockbusters amid a faltering economy and as the DVD market shrinks. Adding to its woes are looming payments on $3.7 billion of debt which stems from a 2005 buyout of the firm.
Many Hollywood insiders have long believed MGM needs to be merged or sold to be successful. But when asked if MGM was considering an outright sale, a source close to the company said the installation of Cooper is to position it for the long term as a production company.
The plan is to keep doing what we're doing. The capital structure needs to be addressed, but we have various films in the pipeline and I'm very positive, the source said.
Sloan, a veteran Hollywood businessman, who took the helm a few months after the 2005 buyout of MGM and who also invested in MGM, will remain with the company as nonexecutive chairman, but will no longer be chairman of the board.
Restructuring expert Stephen Cooper and Parent, along with MGM Chief Financial Officer Bedi Singh, have been named members of the office of the CEO.
Cooper, who was also named vice chairman, will be tasked with leading MGM's efforts to evaluate alternatives to improve its balance sheet, the company said.
According to film financing experts, MGM's operations have largely been funded recently by its library and access to $500 million of financing set up for its United Artists label, partly owned by movie star Tom Cruise.
Cooper co-founded restructuring advisory firm Zolfo Cooper LLC, oversaw Enron Corp's bankruptcy as interim chief executive and oversaw Krispy Kreme Doughnuts Inc's restructuring as CEO.
Parent, a former executive with Universal Pictures, joined MGM in March 2008 to breathe new life into the studio and has been leading MGM's production efforts as chairwoman of MGM's Worldwide Motion Picture Group.
This isn't so much a referendum on Harry Sloan's tenure as it is the plain recognition that shareholders and creditors are squaring off in an all-or-nothing battle, said David Molner, managing director of Screen Capital International, which has conducted more than $7 billion in media and entertainment financing.
The Hollywood studio said in May this year said it hired investment bank Moelis & Co to help refinance its debt and that it was talking with a steering committee of 140 creditors as part of the process.
MGM faces a payment of $250 million in April 2010 on its revolving credit, with the $3.7 billion of term debt due in June 2012.
The studio is home to classics such as the James Bond movies and has an upcoming release schedule that includes a remake of the 1980 movie musical Fame in September.
But cash flow from MGM's film and TV library operations finished 2008 down about 5 percent from a year ago, a source familiar with the matter previously told Reuters.
I think this a sign that they're going in the direction of not having a production slate, said Steve Blume, chief operating officer of Content Partners LLC, which acquires films in the secondary market from hedge funds, private equity firms and banks.
MGM has several options, including an outright sale of the company or making it into a pure library company, which is valued at somewhat less than the debt, Blume said.
Rumors of MGM's potential sale have surfaced for years, including last summer when Paula Wagner, a movie producing partner with Tom Cruise, stepped down from her role as chief executive of MGM's United Artists.
MGM's debt mostly stems from a 2005 buyout of the company by a group of private equity and media investors.
MGM was bought by private equity firms Providence Equity Partners, TPG, DLJ Merchant Banking Partners, a unit of Credit Suisse and Quadrangle Group; and media firms Sony Corp and Comcast Corp in 2005 for $2.85 billion.
The group, which bought MGM from its majority owner Kirk Kerkorian, also assumed debt of about $2 billion.
MGM's ownership breaks down as follows: Providence owns 29 percent, TPG owns 21 percent, Comcast owns 20 percent, Sony 20 percent, DLJ 7 percent and Quadrangle 3 percent.
The deal to buy MGM closed in April of 2005 and Sloan was appointed in October of that year.
Sloan trained as a lawyer but left a private law practice in 1983 and has been a media executive and investor since. He invested in and ran three media companies -- SBS Broadcasting, Lions Gate Entertainment Corp and New World Entertainment.
(Reporting by Megan Davies and Sue Zeidler; Editing by Steve Orlofsky, Matthew Lewis and Richard Chang)