Is it possible, just maybe, that the studio finally has its act together? It certainly appears that way, even as some questions remain.
Shares of MGM Holdings’ thinly traded over-the-counter stock have risen 50 percent since April, to about $58.50. Revenue almost tripled in the last quarter, to $339 million, according to the company. Helped by repeated Standard Poor’s upgrades over the last three years, MGM now has access to revolving lines of credit totaling $750 million.
“The company was on death’s doorstep and now has effectively no debt and is generating a ton of cash,” said Kevin Ulrich, co-founder of Anchorage Capital Group, a New York investment firm that is MGM’s largest single owner, with a 30 percent stake. “That’s an outstanding turnaround.”
Most important, new movies are flowing from the studio. A remake of “Carrie” arrives on Oct. 18, while the blockbuster “Hobbit” series returns in December. “RoboCop,” “22 Jump Street” and “Hercules” come next year. MGM’s James Bond franchise returns in 2015 and remakes of “Ben-Hur” and “Poltergeist” are in the works.
MGM’s television business — a vital part of its growth strategy — is also showing momentum. “Vikings” had its debut on the History channel and was an instant hit. “Teen Wolf” continues on MTV, while “Paternity Court” arrives in syndication on Sept. 23 and a series adapted from “Fargo” chugs toward FX.
“The MGM name had become pretty toxic, both in the financial community and the creative one, and that’s certainly not the case anymore,” Gary Barber, MGM’s chief executive, said last week in a wide-ranging interview. He added, “I feel that MGM is fully rehabilitated.”
Hollywood is not entirely convinced. Some movie executives dismiss the studio as little more than a 4,000-movie library that has already been aggressively exploited on DVD and in cable reruns. The studio’s library generated about $558 million in revenue in 2007, when the DVD market was strong. The total had plunged to $228 million by 2010.
MGM has in recent years declined to disclose how much revenue its stockpile of old films generates, leading to suspicion that sales are weak. All Mr. Barber will say is that library revenue is “substantial.”
MGM has blown the comeback trumpets before only to have its owners cash out and leave the studio reeling anew. The billionaire investor Kirk Kerkorian, for instance, bought and sold the studio three times between 1969 and 2005. By that measure, the studio’s long-term future is far from clear. In addition to Anchorage, shareholders include hedge funds like Highland Capital Management and Davidson Kempner. Many initially bought MGM debt, which was converted to equity in 2010 as part of a prepackaged bankruptcy. Hedge funds are not known as patient caretakers.
“It’s one thing to say the company is doing great, but it’s another thing to successfully sell out a position,” said Steven Azarbad, co-founder of Maglan Capital, a small hedge fund that owns about 1 percent of MGM. “This thing should either be sold or I.P.O.’d. I’d like to see that happen by the end of the year.”
Selling is a potential option. (Lions Gate Entertainment is seen as the likeliest bidder.) MGM could also potentially expand through an acquisition of its own. As for an initial public offering, the studio last year filed a registration statement for one, but never moved forward with it. Because the studio has since grown, that filing is void.
“An I.P.O. will continue to be an opportunity,” Mr. Barber said. “We’re carefully evaluating all of our options. Quite frankly, we don’t need that capital right now.”
Are his hedge fund shareholders restless? “No, no, no,” Mr. Barber said. “The board of directors is strongly supportive of the business strategy we have developed — and that’s not for tomorrow but for long-term value growth. That’s a critical difference from the past.”
Mr. Ulrich, of Anchorage, said, “As long as the return profile remains very strong we will remain a key shareholder.” Using standard financial comparisons, Anchorage and others believe that MGM is sharply undervalued compared to other independent studios like DreamWorks Animation and Lions Gate.
Article source: http://www.nytimes.com/2013/09/09/business/media/latest-overhaul-of-the-mgm-studio-appears-to-be-a-moneymaker.html?partner=rss&emc=rss
