Lionsgate Management Urges Shareholder Reject Carl Icahn Offer
Lionsgate Entertainment Monday urged shareholders to reject billionaire shareholder Carl Icahn’s bid for the company, branding it “inadequate, opportunistic and coercive.” Asking stockholders to approve a shareholder’s rights plan at a special meeting May 4, CEO Jon Feltheimer and Vice Chairman Michael Burns derided Icahn as lacking “media industry expertise.” Icahn’s $6 per share offer isn’t in the “best interests of Lionsgate and doesn’t “fully value” the company, the executives said. Lionsgate’s stock closed Monday down two cents at $6.22.
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Icahn increased his stake in Lionsgate in February to 19 percent from 14.3 percent, making a $4.85 per share offer for the company. Icahn increased it to $6 March 10. Icahn first amassed 3.6 percent of Lionsgate in 2005, and boosted it to 9.2 percent in 2008, claiming the company was undervalued. Burns predicted last year that Icahn might seek “a more active role” at the company (CED Feb 26/09 p3).
If Icahn’s ownership passes 20 percent, Lionsgate could be forced to repay $516 million in accelerated debt, including a $340 million credit facility that otherwise is due in 2013. While Icahn offered bridge financing if Lionsgate defaults on a loan, Lionsgate can’t guarantee an agreement will be reached, the company said.
Icahn has countered that Lionsgate management is “leveraging up” the company to buy film libraries without allowing shareholders to decide if “increasing exposure to this segment is wise.” Lionsgate management’s actions, including the proposed shareholder rights plan, signal that stockholders will “never be allowed to make their own determination on this extremely important decision,” Icahn said. The shareholder rights plan expires in three years and insures stockholders will be able to “consider a reasonable offer” for the company, Lionsgate said.
Icahn hasn’t “articulated a plan” for the company, Lionsgate said. Icahn’s bid comes during a “challenging macro-economic operating environment” for the media industry, Lionsgate said, and it doesn’t “reflect the significant value” of Lionsgate’s investments in TV Guide Network and EPIX channel. EPIX has gained carriage on Verizon FiOS, Comcast, Time Warner Cable, Cox Communications and others.
Lionsgate bought TV Guide Network and TVGuide.com from Rovi last year. It owns 31.5 percent of EPIX, which it formed in 2008 with MGM, Paramount and Viacom. Lionsgate had invested $51.2 million in the venture as of Dec. 31, 2009, the company said. EPIX projected a $40.8 million loss for the quarter ended Dec. 31, Lionsgate said. The channel produced about $25.7 million revenue for Lionsgate, which has made its theatrical movies available to EPIX. Lionsgate also is an investor, along with Saban Capital, in the Tiger Gate pay TV service that’s expected to launch the thriller channel Thrill and comedy channel Kix in Hong Kong and Singapore later this year. In addition to pay TV networks, Lionsgate also has produced the Mad Men, Weeds, Nurse Jackie TV and Tyler Perry House of Payne series. Its feature film business has released Tyler Perry’s Why Did I Get Married Too and Precious.
Video-on-demand, video downloads and pay-per-view along with Blu-ray “continue to generate significant high-margin revenue and growth for us,” Lionsgate said. We have the opportunity to build on our strong platform by rolling up complementary assets at attractive values. Lionsgate projected generating $100 to $125 million in annual free cash flow in fiscal years 2013 to 2015, the company said.
As it laid out its case, Lionsgate used Blockbuster as an example of Icahn’s role in the management of a media company. Icahn waged a proxy battle at Blockbuster in 2005 and gained several board seats. During Icahn’s tenure on the Blockbuster board, the video rental chain posted more than $1.4 billion in losses, Lionsgate said. Its share price fell to 40 cents on Jan. 28 when Icahn resigned from Blockbuster’s board, from $10.05 when he joined it, Lionsgate said. Icahn sold off more than 14 million Blockbuster shares after leaving the board.