Working my way through the stack of trade magazines that accumulated during my recent trip, I found two stories in The Hollywood Reporter that explain more about the MGM situation than I had seen in other sources. I’ll try to summarize what they say, as well as add a bit of recent news. (Online, the stories are here and here.)

As everyone knows by now, MGM is deep in debt. About 140 separate lenders, led by JP Morgan Chase, are owed a total of $3.7 billion. They want MGM to be sold outright. They have been suspending the studio’s interest payments, hoping that MGM will be worth more if it’s not in bankruptcy.

MGM insists that the current auction really isn’t an auction and that the studio won’t necessarily be sold. Bidders are not being allowed to make offers for individual assets of the studio, which would include the firm’s distribution rights and co-production contract for The Hobbit. Similarly, bids are not for the entirety of the studio but for a percentage ownership of its equity. The current owners include Providence Equity, TPG Capital, Sony, Comcast, DLJ Merchant, and Quadrangle.

The first round of bidding ended on the Martin Luther King, Jr. birthday weekend, January 18. Twelve firms had signed non-disclosure agreements in order to be allowed to examine MGM’s assets and liabilities. Seven of these ended by making bids, included Time Warner (corporate owner of Warner Bros., of which New Line is a subsidiary), Lionsgate (a distributor of inexpensive independent fare, most famously the Saw series), AT&T, and Summit Entertainment (which recently considerably raised its low profile by distributing Twilight when other studios passed on it).

Rupert Murdoch’s News Corp., owner of Twentieth Century Fox, was originally rumored to be involved, but it refused to sign a strict non-disclosure agreement and sat out the first round of bidding. News Corp. has subsequently signed on and was expected to join in the second round.

None of the first round of offers reached $2 billion. The two most serious bidders are reported to be Time Warner and Lion’s Gate. The latter’s bid was $1.5 billion. Time Warner’s offer was not revealed.

As THR explains, “It’s clear that any company buying the studio will demand that the Lion first submit a prepackaged bankruptcy filing …. That will be needed to keep debt and other liabilities from carrying over to a new owner of the studio.” Prepackaged bankruptcy would mean that the buyer would not be inheriting the studio’s debts.

The first-round bidders were expected to be told by late January which ones would be invited to participate in the second round. They would then “gain access to more financial data about the studio” (a process known as “due diligence,” for those who may have run across that term in the MGM coverage). No news yet as to whether those invitations have been offered.

Some significant information emerged on February 3 when the Associated Press reported that Time Warner head Jeff Bewkes “became the second media CEO in two days to pooh-pooh the value” of MGM. According to this story, the studio’s assets have been valued by some at $2 billion. Bewkes’ attempt to play down how much MGM is worth may well be a bargaining ploy.

The second CEO was Murdoch, who on February 2 claimed that the bidding for MGM had already passed what he was willing to pay, so he “can be counted out.” If he stands by that statement, Time Warner has lost a major rival if it really does want to acquire MGM and at last reunite the production and distribution rights for The Hobbit with one company.

[Thanks for David Platt for alerting me to the AP story!]