Lionsgate, Carl Icahn talks collapse

Studio shares decline 32 cents to $4.96

Lionsgate may be in play as a takeover target for billionaire investor Carl Icahn.

In a development that could signal the start of a rough proxy battle for control of the company, talks on giving board seats to Icahn collapsed Wednesday over a “standstill” agreement that the mini-major demanded as a condition of installing Icahn’s choices for its board.

“We have recently been engaged in discussions with Lionsgate regarding the possibility of having a number of our designees added to Lionsgate’s board of directors,” Icahn said in a statement released after the New York Stock Exchange closed. “Those discussions have been terminated because agreement could not be reached concerning certain aspects of the standstill agreement that Lionsgate demanded as a condition to installing those board members.”

People inside and outside the company have been scratching their heads about what precisely Icahn wants. When he built up positions in Yahoo, Time Warner and Blockbuster, he had disagreements with management on strategic direction. That doesn’t seem to be the case here.

“I don’t know that he has a quarrel,” said Dennis Miller, a former Lionsgate exec who is now general partner in venture firm Spark Capital. “I just think he saw a value and he wants control. But people are still trying to figure out what that control means.”

Lionsgate shares had declined 32¢, or 6%, to $4.96 during Wednesday’s session and have lost half their value over the past year in keeping with the media sector. Icahn currently owns 14.5% of the stock. Former Icahn associate Mark Rachefsky holds the biggest position with 19.4% of shares.

People close to the discussions have indicated that Lionsgate isn’t eager to replace members of its 12-seat board with people who lack a background in the entertainment business. Speculation has centered on the possibility that Icahn wants a seat for his 29-year-old son, Brett, who is said to be interested in moving into showbiz.

Lionsgate responded Wednesday with a statement from co-chair and CEO Jon Feltheimer and vice chair Michael Burns asserting that Lionsgate has a strong track record of successful growth over the past nine years and is committed to building value for its shareholders.

“We are always open to hearing the ideas of our shareholders and exploring ways to incorporate them,” the execs said. “Over the past three weeks, our board of directors has been in discussions with Mr. Icahn to consider how we could accommodate some of his requests, including the possible appointment of his designees to the board of directors. However, the board ultimately concluded that it could not meet his requests and continue to serve the best interests of all of our shareholders, which is our No. 1 priority.”

Any kind of transaction — a spinoff, asset sale or outright sale of the entire company — would be distorted by the current economic environment if one is possible at all. Plus, while Lionsgate has grown steadily, its asset scope and current market cap of $574.5 million makes it a much smaller entity than the congloms Icahn has targeted in the past.

Icahn disclosed in a Feb. 23 SEC filing that he could seek to add directors by expanding the current board or removing some members. The current board of the Vancouver-based company has 12 members, and eight of those seats must be filled by Canadian residents.

Lionsgate came under pressure from Icahn after reporting a $93.4 million quarterly loss on Feb. 9, when it announced that it plans to lower costs by making fewer movies. Since then, it’s scored solid box office from “My Bloody Valentine 3D” and “Tyler Perry’s Madea Goes to Jail.”

The company also produces TV skeins “Mad Men” and Weeds.” Its library contains more than 8,000 films and 4,000 TV shows. That’s a lot of titles, but library valuations are not what they were a couple of years ago given the accelerating softness of DVD, the unimpressive start for Blu-ray and the lack of meaningful online revenue streams.

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