Boutique movie studio Lions Gate Entertainment Corp. said Monday that its proposed takeover of Metro-Goldwyn-Mayer Inc. would save more than $100 million a year in overhead and boost cash flow beyond that by more than $120 million over five years.
The plans call for laying off 174 people, reducing the total number of employees at the two companies by about 17 percent to 835.
The company made details of its proposal public in a letter to MGM on Monday. Documents were also filed with the Securities and Exchange Commission.
MGM, the studio behind the James Bond and Pink Panther movies, has skipped interest payments, with the agreement of its creditors, on more than $4 billion in debt since last October as a lack of hits and a downturn in DVD sales brought it to the brink of insolvency.
The details of Lions Gate's proposal were released just days before MGM creditors face a Friday deadline to vote on an alternative plan to merge with a unit of Spyglass Entertainment. The Spyglass deal would see MGM creditors, owed more than $4 billion, own more than a 95 percent stake in a company worth around half of that.
In Lions Gate's proposal, MGM creditors would receive about a 55 percent stake in a new company that Lions Gate valued at $3.6 billion to $5.5 billion. Assuming creditors held onto their stakes for five years, Lions Gate argued the takeover had the potential to allow MGM creditors to get back all they are owed and more.
Both plans foresee a prepackaged bankruptcy filing for MGM, which is now privately owned.
Lions Gate first made its proposal in July. It was updated this month with the backing of shareholders who control about 71 percent of the company's shares. That group includes billionaire investor Carl Icahn.
In its takeover proposal, Lions Gate would absorb MGM and carry about $1.1 billion in debt. About $500 million in debt would be secured by movies and TV shows in MGM's library, while about $600 million would come from the existing Lions Gate. Lions Gate CEO Jon Feltheimer would become chief executive of the combined company.
The combined company would seek to release about 16 films per year: a dozen from Lions Gate in classic genres such as horror, and four from MGM, including its upcoming "The Hobbit" movies and one James Bond film every other year beginning in fiscal 2013. MGM also would release one or two movies with budgets exceeding $80 million that would seek out the broadest audiences possible. Lions Gate said it had the cash on hand or the ability to raise money to cover new projects such as "The Hobbit."
On top of overhead savings linked with layoffs, the company said it would also generate more cash flow from lower distribution fees for its new and older movies, and combining the back office operations of its pay TV channel businesses around the world.
Lions Gate shares rose 4 cents to close Monday at $7.47. Icahn, who controls 37.3 percent of Lions Gate's shares, is currently bidding for other shareholders to sell him their shares in the company for $7.50 apiece.