Lionsgate’s brighter earnings outlook

Minimajor bullish on fiscal '10 forecast

Lionsgate, pressured by Carl Icahn’s hostile takeover bid, has issued a bullish earnings outlook that is 50% better than it forecast two months ago.

In the latest salvo in the long-running drama between the minimajor and Icahn, Lionsgate announced Thursday that the improvement for its fiscal year ended March 31 was due to its TV business, record library revenues and higher home entertainment revenues.

Icahn, who wants to oust management, responded by dumping cold water on the forecast, asserting in a CNBC interview on Thursday the figures were meaningless due to a lack of specifics on amortization and spending on films.

Shares of Lionsgate gained 13 cents to $7 in trading on the New York Stock Exchange — matching the price of Icahn’s hostile tender offer, which expires today.

Icahn told CNBC that he considers his bid to be “fair” and that he would not give up even if shareholders fail to take him up on his tender offer.

Several analysts said Thursday that the Lionsgate forecast strengthens management’s hand and said they expect Icahn will sweeten his offer.

“We continue to think the revised bid remains unlikely to be successful,” said Doug Cruetz of Cowen & Co., who reiterated his “outperform” rating. “We believe that this morning’s positive pre-announcement undermines Icahn’s case that management is failing to operate the business in the interests of shareholders and is likely to give the company more ammunition in fending off the hostile tender.”

Alan S. Gould at Soleil Securities said Lionsgate is worth $10 a share. “Given the fundamental upside, and the possibility that Icahn could further increase his bid, we are reiterating our Lionsgate ‘buy’ rating and $8 target price,” he said.

Lionsgate, which will report its fiscal 2010 results on June 1, said adjusted earnings before interest, taxes, depreciation and amortization are more than $115 million. “These results underscore the strengthening financial performance that the company has been reporting throughout the fiscal year,” the company said.

Co-chair and CEO Jon Feltheimer said continued growth of video on demand and other services has also been a recent catalyst for the improved performance. He also said the company’s targeting a return to positive free cash flow in fiscal 2011.

“We remain on track to achieve the significant free cash flow gen eration for fiscal 2013 to 2015 of $100 million to $125 million annually (before contributions from TV Guide Network, Epix and FearNet) as outlined in our most recent investor presentation,” he added.

The latest salvo came two days after Icahn scored a victory with the decision by Canadian regulators to rescind Lionsgate’s poison pill defense. Lionsgate’s appealing that decision and has moved the shareholder vote on the poison pill back a week to May 12. Poison-pill provision, dubbed a shareholder rights plan, had been designed to dilute the value of Icahn’s shares if he exceeds a 20% stake.

The company’s characterized Icahn as a short-term opportunist who is unwilling to let management’s long-term strategy work. Icahn told CNBC he was unimpressed by the earnings forecast.

“I don’t know how any of these guys can tell you what they’re going to earn in 2013,” he said. “These earnings don’t mean anything. You have no idea whatsoever about what the amortization is and what the money is they’ve spent on films. They don’t tell you that, and that worries me a little bit, because why aren’t they telling you what the amortization is?”

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