Investor's stock grab could hurt Lionsgate's credit
Moody’s Investors Service has warned that Carl Icahn’s bid to boost his Lionsgate stake could hurt the minimajor’s credit.
Moody’s issued the warning Tuesday. Lionsgate blasted Icahn’s unsolicited bid last week, saying his effort to raise his stake from 19% to 29.9% is coercive and doesn’t properly value the company.
“A successful tender would put negative pressure on the company’s credit rating as the company does not presently have material financial flexibility within its current credit rating” said Moody’s senior VP Neil Begley.
Moody’s current rating of Lionsgate debt is B2 — below investment grade and “subject to high credit risk.”
The rating agency said the tender offer, if successful, would also provide Icahn with effective control of Lionsgate since he’d be the largest shareholder. That could result in potential harm to debt investors or potential veto capability over significant transactions, Moody’s noted.
Icahn launched the unsolicited offer March 1 at $6 a share — which Lionsgate management contends isn’t fair value for the stock. Shares of Lionsgate were up 20 cents to $6.16 on Tuesday.Icahn’s said he’s not trying to take over the company but simply wants to exercise more influence over potential acquisitions such as MGM and the Miramax library. But Lionsgate’s asserted that if Icahn’s offer is successful, he would have effective “veto” power over transactions and could cause a default of Lionsgate’s credit line.
Moody’s reitereated those concerns Tuesday and noted Icahn’s “lack of expertise” in the film and TV production business along with his previous moves to boost stock prices at other companies. “Time Warner Inc. and Motorola are both examples, among others, where Mr. Icahn has exerted pressure on boards to increase shareholder value at the expense of issuer credit worthiness,” Begley said.