The bruising battle between Carl Icahn and Lionsgate management has entered the trench warfare stage, with multiple salvos being fired over which side should control the minimajor.
Icahn, in a blistering letter sent Friday to the board of directors, warned that Lionsgate may have to file for bankruptcy due to possible credit defaults and officially notified the minimajor that he’ll launch a proxy fight to take over the board. His current offer of $7 a share expires Wednesday.
Lionsgate fired back with the assertion that it’s healthy and will be able to sort out its balance sheet. It also repeated its criticism that Icahn, owner of 18.8% of the stock, is making a lowball offer that shareholders should ignore.
Icahn’s lengthy letter chided the board for ignoring overspending, “anemic” cash flow and a stock price that was down 50% on its value five years ago.
“Since the board is clearly unwilling to tell the Emperor he wears no clothes, it is left up to the shareholders to take action,” Icahn’s letter concluded.
“We therefore intend to conduct a proxy solicitation to seek to replace the board with our nominees at the upcoming annual general meeting of shareholders. We are hopeful that a newly elected board will act expeditiously to replace management and hold the new team accountable for performance moving forward.”
Lionsgate shot back on Friday, saying it had “a strong balance sheet and ample cash to continue driving shareholder value.” “Shareholders should ask themselves why Mr. Icahn wants to acquire shares at $7 per share if he believes Lions-gate is at risk. Lionsgate urges shareholders to protect the value of their investment and continue to reject the Icahn Group’s inadequate offer by not tendering their shares and for those who have already tendered, to withdraw them.”
The company also sent shareholders a lengthy letter detailing its improved recent performance, noting that its cash flow for fiscal 2010 ended March 31 was $128.5 million — 70% above initial forecasts.
“Our plan is working, our businesses are on track and we expect to continue to build our world-class media platform,” said Lionsgate toppers Jon Feltheimer and Michael Burns.
Icahn’s bid values Lionsgate at $825 million. He’s the second-largest shareholder behind Mark Rachefsky, who owns just short of 20%.
Icahn’s latest extension has dropped the requirement of a 50% support level for the offer to go through. Mark Cuban, who holds 5.3% of Lionsgate, indicated last week that he’ll tender his shares to Icahn — who said in the letter that he was hopeful that Cuban would do so. About 4% of shareholders had tendered their shares before Icahn’s latest extension.
Icahn criticized the board for not having planned for potential default under the terms of the company’s revolving credit facility that could be triggered once Icahn’s holdings exceed 20%. “There is no assurance that your lenders will waive such defaults,” he added.
Icahn also asserted that the Lionsgate board had ignored his attempts to discuss his offer to provide a possible bridge loan to refinance its debt. “I remain confused as to why you refuse to deal with the ticking time bomb sitting in your debt documents.”
In response, Lionsgate said it has been in discussions with its lenders to seek a waiver or amendment to its credit facilities in order to prevent a default and was “confident” in its ability to obtain one in the near future if necessary.
“This will resolve an issue that Mr. Icahn is trying to create,” Lionsgate said. “In addition, the company and its management have looked at financing options and alternatives to ensure that shareholder value is protected and that the company will be able to continue its business despite the consequences of the Icahn Group’s offer.”
It also said it would “welcome” the opportunity to review the actual terms of a proposed bridge facility from Icahn.
As for the bankruptcy issue, Icahn warned that if the defaults were triggered and Lionsgate couldn’t obtain waivers or alternative financing, Lionsgate’s assets may not be sufficient to repay this debt in full.
“Under such circumstances, Lionsgate may find it necessary to pursue a voluntary bankruptcy filing,” he noted.
Lionsgate hasn’t yet set its annual meeting at which the board is elected, but that usually takes place in Toronto in September during the Toronto Film Festival.