Metromedia receives $480 million offer for Georgia interests; sale would be completed in Chapter 11

By Caroline Salls

Pittsburgh, Oct. 2 - Metromedia International Group, Inc. received an offer to acquire all of its business interests in the country of Georgia for a cash price of $480 million from an investment group comprised of Istithmar, Salford Georgia and Emergent Telecom Ventures, according to a company news release.

In response to the offer, Metromedia entered into an agreement with the investment group providing for exclusivity in negotiations during a 60-day due diligence period and outlining intended terms of a binding sale and purchase agreement to be executed within the exclusivity period.

If a binding sale and purchase agreement are executed with the offering group, the company said it intends to undertake the sale through a prepackaged Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the District of Delaware.

Holders of Metromedia's common stock would likely receive $1.60 per share, and holders of preferred stock would receive about $71.00 per share in the wind-up. That estimate depends on the proposed purchase price, the terms of agreements with preferred stockholders and present management estimates of costs and liability settlements

According to the release, a binding sale and purchase agreement could be executed in early December.

Prepackaged plan distributions

Upon the approval of the company's prepackaged plan of reorganization, which will be filed when the company files for Chapter 11, all of the preferred and common equity interests in the company will be converted into the right to receive the cash remaining after payment of all allowed claims and the costs and expenses associated with the sale and the wind-up.

As a result, the company has also entered into a lock-up, support and voting agreement with representatives of holders of about 80% of its 4.1 million outstanding shares of preferred stock. The agreement commits the preferred representatives to support a plan in the wind-up under which the company would distribute to preferred stockholders $68 for each preferred share from net distributable cash, up to $420 million, and to distribute to each preferred share one-half of net distributable cash in excess of $420 million.

The remaining balance of net distributable cash would be distributed to each common share.

Under the proposed acquisition, the offering group would buy the company's sole ownership interest in Metromedia International Telecommunications, Inc., which indirectly owns 50.1% of the Georgian mobile telephony operator Magticom, 21% of Telecom Georgia and 26% of Telenet.

The group will acquire all of the outstanding capital stock of Metromedia International Telecommunications for $480 million cash payment due at closing.

The parties further agreed that Magticom could distribute to its shareholders up to $30 million in dividends before the sale without effect on the proposed purchase price for Metromedia International Telecommunications, of which Metromedia said it expects to receive $13.5 million for its 50.1% economic interest in Magticom.

The offering group is in discussions with Metromedia chairman and chief executive officer Mark Hauf regarding the possibility of continuation of his services.

Metromedia will be required to reimburse due diligence expenses of the offering group if the company elects not to proceed with the proposed sale.

"Although it has not been the company's active intention to divest its remaining operating units, we have remained open to considering compelling purchase proposals," Hauf said in the release. "The current offer, in the opinion of the board, represents such a proposal.

"It affords an opportunity to monetize for our stockholders the value developed in the company through the preceding three years of restructuring.

"Seizing this opportunity to liquidate on attractive terms also acknowledges the extreme difficulties and significant costs the company has faced and will continue to face in its efforts to meet reporting obligations as a U.S. publicly traded registrant with all of its operations conducted in foreign emerging markets.

"It also acknowledges the practical limits the company faces in raising additional funds to fuel material expansion of our foreign operations without very substantially diluting the interests of our present stockholders."

Distribution of proceeds

Net distributable cash will consist of the cash proceeds of the intended sale plus the company's portion of dividends received from Magticom before the sale and all headquarters cash on hand at sale closing, less any taxes arising out of the sale of assets; payments of all claims in the wind-up case; necessary reserves for the final liquidation of the company and its subsidiaries; professional fees connected with the sale and the wind-up; and board-approved bonuses to company directors, management and employees, expected to use about 5% of the sale proceeds.

The company said it expects the net distributable cash following consummation of a $480 million sale in first quarter of 2007 and essential conclusion of the wind-up by the end of first half 2007 will range from $440 million to $450 million.

Under the preferred shareholder plan of distribution, this would result in distribution of $70.42 to $71.62 for each preferred share and $1.58 to $1.63 for each common share.

By the end of first half 2007, the combined face value plus accumulated unpaid dividends that would otherwise be due to the preferred stockholders would total about $325 million or $78.50 per preferred share outstanding.

"There has been longstanding disagreement among holders of the company's two classes of stock concerning the claim each might have on enterprise value generated through resolution of the company's earlier financial difficulties," Hauf said in the release.

"In reaching this agreement with preferred stockholders, we acknowledged the priority nature of their rapidly increasing claim in the event the company faced liquidation of its remaining assets.

"Given the practical limitations imposed by the company's present and historical condition on raising significant additional investment capital, the prospect of the eventual sale of foreign operating assets rather than their continued aggressive development has been ever present.

"If undertaken without some concession by the preferred stockholders, such sale would result in distributions to our common stockholders of materially less than market trading price.

"The opportunity presented by the offering group's acquisition proposal and the concessions agreed with the preferred representatives enable the company to wrap up its operations while still delivering to our common stockholders an amount exceeding the company's 90 calendar-day average trading price for the common stock."

Charlotte, N.C.-based Metromedia owns interests in communications and media businesses in the country of Georgia.

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