Settlement with Carl Ichan drives stock price down
Wall Street is happy to see Lionsgate settle its long-running takeover battle with Carl Icahn.
Despite a 7% decline in the minimajor’s share price on Wednesday, several prominent analysts weighed in with positive research notes about the accord unveiled late Tuesday that will see the maverick investor and his son, Brett, sell their 33% stake in Lionsgate for a total of about $309 million.
Lionsgate shares saw an inevitable decline in the first day of trading after the announcement, with shares dropped 56¢ to close at $6.96 — a shade below the $7 price set by Lionsgate and Icahn for sale of Icahn’s 44.2 million shares. Volume was far heavier than normal, with more than 2.5 million shares changing hands.
The Lionsgate-Icahn pact calls for the sides to dismiss all outstanding litigation between them and release all claims they may have against each other. Lionsgate will buy back 11 million shares and director Mark H. Rachesky will buy an additional 11 million shares; the company will arrange to sell the remaining 22 million Icahn shares over the next 35 business days.
Wall Streeters hope the end of the Icahn distraction will give a lift to Lionsgate shares that have been weighed down by the drama.
“It provides a path to resolve the potential overhang of Icahn’s position, it demonstrates management’s bullishness by purchasing its own shares, it removes risk of outstanding litigation, it effectively closes the book on Icahn’s disruptive attempt to take control of Lionsgate, and should also help increase the effective liquidity of the shares over time,” Piper Jaffray analyst James Marsh wrote Wednesday. “We would be buyers on any weakness and maintain our overweight rating and $12 price target.”
Lionsgate shares haven’t been over $10 since August 2008.
The stock sunk below $5 six months later — prompting Icahn to begin his battling with the company in which he relentlessly second-guessed spending and strategy, culminating in a variety of lawsuits between the billionaire and the minimajor. Icahn launched a hostile takeover bid at $6 a share in March 2010 and put up a rival slate of directors for the Lionsgate board, but both of those efforts were ditched late last year.
Icahn had largely stayed silent on the Lionsgate front for most of this year and Lionsgate reported on Aug. 9 that it had posted a $12.1 million profit for its first quarter ended June 30 due to lower costs, compared with a loss of $64.1 million in the year-ago quarter.
It said the improved performance included a decrease in expenses “associated with shareholder activism” — a reference to last year’s ongoing expenses from battling Icahn.
Lionsgate’s next feature releases are a pair of action-dramas: “Warrior,” opening Sept. 9, and “Abduction” with Taylor Lautner, launching Sept. 23.
The minimajor also has high hopes for starting a franchise with “The Hunger Games,” with the first of four pics out in March.
Lionsgate execs tout the company’s TV biz and its expansion into digital as keys to its future growth.
“Our strong performance in the quarter reflected significant contributions from our television business and our share of the Epix channel as well as decreased costs in several areas,” said Lionsgate co-chairman and CEO Jon Feltheimer in the Aug. 9 earnings report.
“Our rapid and accelerating transition from traditional to new digital businesses, both domestically and internationally, is helping to drive our progress and positioning us for future growth, and we’re very excited about our upcoming slates that highlight our momentum in building new film and TV franchises as well as extending our existing brands.”