The green light for a pre-packaged bankruptcy scuppers -- for now -- an 11th-hour proposal backed by billionaire Carl Icahn to merge Lions Gate with MGM.
Experts say the activist shareholder could still challenge the deal in bankruptcy court, and an eventual partnership between MGM and Lions Gate remained possible.
MGM, which has struggled for years to reduce its debt, confirmed it had obtained creditor approval for a plan of reorganization to salvage one of Hollywood's most legendary studios, home to the James Bond franchise.
It did not offer more details in its statement on Friday. But the source said the plan still entailed Spyglass heads Gary Barber and Roger Birnbaum taking over a slimmed-down MGM.
However, as a concession to Icahn, the investor is likely to be granted the right to nominate his choice of candidate to at least one seat on MGM's board, the source added.
"MGM will now move expeditiously to implement that plan, which will dramatically reduce its debt load and put the company in a strong position to execute its business strategy," the studio said in a brief statement.
Icahn -- an investor in both studios -- had lobbied for creditor support of a bid by Lions Gate, producer of the popular "Saw" franchise and "Mad Men" TV series.
That late offer marked an about-face from his previous opposition to such a combination. In another twist, Lions Gate on Thursday sued Icahn, accusing him of interfering with an earlier effort to merge with MGM for personal gain.
WHAT'S NEXT?
MGM has struggled with debt since a $2.85 billion 2005 leveraged buyout by a group that included private equity firms Providence Equity Partners, TPG, Quadrangle Group and DLJ Merchant Banking Partners, and media companies Sony Corp and Comcast Corp.
It first began exploring its options last November but put an initial idea of selling itself on hold, after offers from such interested buyers as Time Warner Inc -- which bid about $1.5 billion -- were considered too low.
Friday's approved proposal provides for MGM's secured lenders to exchange more than $4 billion in outstanding debt for equity in the company upon its emergence from Chapter 11.
The majority of such senior secured lenders are led by JPMorgan Chase and Credit Suisse, according to Thomson Reuters data.
Bankruptcy experts believe Icahn could next try to challenge the Spyglass deal in bankruptcy court. Meanwhile, the legal squabbling between Icahn and Lions Gate continues.
In the suit filed Thursday, the studio said Icahn misled shareholders by calling its earlier pursuit of MGM a "misguided strategy" that would end in oblivion.
That suit said Icahn was "secretly plotting to merge the two studios -- but only after he had acquired a sufficiently large position in both companies at depressed prices to ensure that he maximized his own profits."