Icahn saga shines spotlight on Feltheimer, Burns
Thanks to Carl Icahn, Lionsgate toppers Jon Feltheimer and Michael Burns find themselves in the spotlight these days — an unaccustomed position for the duo, even after a decade of heading the mini-major.
In recent weeks they have seen their feud with billionaire investor Carl Icahn turn increasingly bitter and public, in large part because of their strategy to grow their business — which has been plagued by a stagnant stock price that’s barely half of its 2007 high. Icahn, who launched a hostile bid for the company two weeks ago, appears determined to tap into shareholder disappointment to seize control and oust the two, though it’s highly unlikely to happen unless he significantly boosts his bid.
But Feltheimer and Burns, accused by Icahn of “swinging for the fences” and on course to bankrupt Lionsgate, are more likely to be seen by industry insiders as minimal risk takers rather than anxious to wade into deep water. The two have received generally high marks from Wall Street and some of its major shareholders, particularly for diversifying the company.
“Feltheimer and Burns have done a good job of taking the company forward,” said David Miller of Caris & Co. “Even though Lionsgate in known as a movie company and library play, what they really do well is TV, which they’ve absolutely clocked in the last five years. They’re outstanding TV producers.”
Feltheimer and Burns offer contrasting styles. Feltheimer, the co-chairman and CEO, still carries traces of a Brooklyn accent and is often described as a bottom-line realist; Burns, who’s vice chairman, blends his buttoned-down roots as an investment banker with a creative bent.
Though the Lionsgate duo are not absent from Hollywood events, they tend to attract little attention compared to moguls such as Disney’s Robert Iger. In keeping with their style, Feltheimer and Burns declined to be interviewed for this article.
“Jon’s an excellent operational leader and Michael’s great at managing the financial side,” veteran media investor Gordon Crawford of Capital Research told Daily Variety.
Feltheimer had extensive experience in showbiz prior to joining Lionsgate. He arrived in Los Angeles to become a musician three decades ago, became an exec at New World in the 1980s, then spent much of the ’90s running Sony Pictures’ television operations. Burns spent most of the ’80s and ’90s at Prudential Securities and Shearson/American Expresss; he also specialized in raising equity within the media and entertainment industries.
These days, with Icahn irked over the stagnant stock price, Felt-heimer and Burns face a time-consuming and expensive distraction that’s unlikely to go away any time soon.
They have asked shareholders to approve a poison pill that would make it more difficult for Icahn to take control. And several analysts have indicated that Icahn’s bid of $6 a share — less than the closing stock price of $6.22 on Monday — isn’t going to sway enough shareholders to give the activist investor control.
“He has to realize that he’s not going to get it at this price,” said Matthew Harrigan of Wunderlich Securities. “This isn’t 1985, where they might give him $10 a share to make him go away. And the market’s not all that disposed to breaking up a company right now.”
Icahn, who owns 19% of Lionsgate, also blistered Feltheimer and Burns over Lionsgate’s recent decision to explore acquisitions of MGM and the Miramax libraries. The execs, who have asserted in interviews that they have a fiduciary obligation to shareholders to explore ways of growing Lionsgate, backed away from both potential deals once it became clear that a low-ball bid would not be accepted.
Meanwhile, several analysts believe that the stock will rise as it becomes evident that Feltheimer and Burns have executed well on strategies of growth and diversifying into TV and new media. Over the decade, annual revenues have jumped from $100 million to $1.5 billion. And it’s a player in TV as the home of kudos darling “Mad Men” and Showtime’s “Weeds” and “Nurse Jackie.”
Miller’s particularly enthusiastic about last year’s acquisition of TV Guide Network, noting that it will enable Lionsgate to grow revenues through the steady returns of an established cable outlet. He’s also bullish on Lionsgate’s moves into new distribution areas such as VOD channel Fearnet and fledgling pay TV channel Epix, which the company launched last year in partnership with Viacom and MGM.
Feltheimer and Burns received good news last week when veteran media analyst Alan Gould of Soleil Securities initiated coverage on the company’s stock with a buy rating and an $8 a share target price. He said that a cold streak at the box office plus a slowdown in the DVD business have been factored into the valuation of the company; he also noted that Lionsgate has reinvested most of its free cash since Feltheimer and Burns arrived.
“We believe TV is a better and more profitable business than movies and Lionsgate has done a good job building its television division,” Gould said. Lionsgate, he added, has managed to succeed because it’s well capitalized, has sufficient cash flow from a 12,000-title library — estimated at $100 million annually — and manages its expenses.
Lionsgate originated 13 years ago when Canadian investment banker Frank Giustra founded the company with assets from Cinepix Film Properties. The company, based in Vancouver, now has about 1,000 employees and has most of its key operations in Santa Monica.
Feltheimer and Burns have made half a dozen major acquisitions — Trimark in 2000, Artisan in 2003, Brit film underwriter Redbus in 2005, syndicator Debmar-Mercury in 2006, Mandate Pictures in 2007 and TV Guide Network last year — all at what Lionsgate considers non-premium prices.
On the feature film side, Lionsgate remains an enigma.
It’s best known for the “Saw,” “Hostel” and Tyler Perry movies. (“Why Did I Get Married Too” made $30 million in its opening last weekend, the second best of the nine Tyler Perry films.) But Lionsgate also has managed over the past decade to earn 47 Oscar nominations for such arthouse fare as “Crash” “Precious” and “Monsters Ball.” It’s also released such offbeat documentary fare as Michael Moore’s “Fahrenheit 9/11” and Bill Maher’s “Religulous.”
Under Feltheimer and Burns, Lionsgate’s movie operations are run very differently from the six majors. Lionsgate releases about 14 pics a year, about half produced internally. Average spending after government rebates and foreign presales is a mere $12 million per film.
Still, Icahn’s seized upon “Killers” as an example of allegedly profligate spending. The action-comedy represents a bit of a departure for Lionsgate with a budget of about $70 million and pair of recognizable stars in Katherine Heigl and Ashton Kutcher.
But Feltheimer and Burns continue to be tight-fisted compared to the majors. For example, the upcoming thriller “Abduction,” even with the cost of star Tyler Lautner, will probably come in at about $40 million. “Precious,” for example, was a $5.5 million Sundance purchase; “Kick-Ass,” which is much anticipated among fan-boys and could top $100 million at the box office, cost Lionsgate a mere $15.5 million.
Meanwhile, showbiz dealmakers say the message from Feltheimer and Burns remains unchanged: As much as they’d like to aim for kudos fare, they are cautious about spending.