Offer only valid if Rachesky's shares are rescinded

Continuing to keep the pressure on Lionsgate, Carl Icahn’s sweetened his hostile offer for the minimajor by 15% — but with a major catch.

Icahn, in an announcement Tuesday, declared his $7.50 a share offer will only be valid if Lionsgate rescinds its July 20 debt-for-equity deal with Lionsgate director Mark Rachesky, or converts Rachesky’s shares into nonvoting stock.

He also reiterated his promise to launch a proxy fight to replace the board. Date for the Lionsgate annual meeting hasn’t been set and probably won’t occur until November or December.

Icahn’s offer expires Oct. 22 and he’s asked the Supreme Court of British Columbia to reverse the issuance of Lionsgate stock to Rachesky with a hearing set for Oct. 12. The company’s July 20 swap of debt for equity increased Rachesky’s stake to 29% and reduced Icahn’s stake from 38% to 33%.

Doug Creutz, an analyst at Cowen & Co., told Daily Variety that Icahn’s latest move is further evidence that Icahn won’t go away — even though Creutz doesn’t believe Icahn’s appeals to Canadian regulators will have any real impact. Instead, he said, Icahn’s “pulling ever lever he can to put pressure” on management. “He is determined to get his way,” added Creutz, “so you may see him continuing to walk up his bid.”

Shares of Lionsgate soared 65 cents, or 10%, to $7.14 in trading Tuesday on the New York Stock Exchange following Icahn’s announcement.

Marla Backer, an analyst with Hudson Square Research, told Daily Variety that she’s mystified why Icahn doesn’t just make a substantial offer to Lionsgate shareholders “like $7.50 plus 20%, or 30% because clearly he believes the company is worth more than $7.50.”

Lionsgate responded to Icahn’s latest move by saying its board will study the offer and advised shareholders to take no action at this time.

It’s the fourth time this year that Icahn’s made a tender offer to Lionsgate shareholders. On Feb. 16, he offered $6 per share — representing a 15% premium of previous trading day’s close.

On April 15, Icahn sweetened to offer to $7 a share, a 9% premium, which boosted his stake from 19% to 34%; and on July 20, he offered $6.50 a share, or an 8% premium.

In his announcement, Icahn blasted away at Lionsgate’s management and board — as he’s done for the past year.

“Lionsgate’s latest actions (including the recent implementation of a second poison pill after the first poison pill was struck down by Canadian securities regulators and the issuance of Lions Gate common shares to a fund controlled by director and significant shareholder Mark Rachesky) have increased the Icahn Group’s concern that the directors are no longer acting as fiduciaries,” Icahn said.

“Given its recent decision to issue shares to an insider at $6.20 per share without conducting a market check, we would normally expect that the board must recommend that shareholders accept our offer of $7.50 per share, but with this board anything is possible,” he added.

Icahn’s been highly critical of Lionsgate management over what he sees as excessive spending on overhead and film production.

Lionsgate has contended in the past that Icahn’s attempting to buy the minimajor for a lowball price and asserted that he’s incorrect about the company’s spending. It’s also attacked his track record in the entertainment industry.

Lionsgate has scored recent back-to-back successes “The Last Exorcism” and “The Expendables” combining for more than $100 million at the domestic box office.

Curiously, Icahn agreed in July to a 10-day truce during which the two sides discussed potential business transactions including a merger with MGM that would have placed CEO Jon Feltheimer and Vice Chairman Michael Burns in charge while retaining the MGM name. Since then, MGM debtholders have shifted course and appear to be leaning toward making a deal for Spyglass Entertainment execs to run MGM.

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