Artisan carving off a stake

Lions Gate expected to make bid

HOLLYWOOD — Artisan’s board has decided to conduct a brief auction to sell at least a minority stake in the New York-based film company within two months.

Briefing books on the company will be distributed in about a week to two dozen or more prospective suitors by investment firms Allen & Co. and Harris Williams.

One of those interested in making a bid is expected to be Lions Gate, which Wednesday announced a secondary stock offering to raise upward of $30 million for purposes including potential acquisitions.

The main purpose of the Artisan auction is to cash out 26% stakeholder Audax, a Boston-based investment firm. But if offers received are sufficiently lucrative — and Artisan has dramatically increased its desirability by cleaning up its balance sheet over the past year — other minority shareholders of the privately held company could decide to sell as well, sources said.

No changes expected

Artisan execs declined comment, but a well-placed source said management of the company under CEO Amir Malin is unlikely to change unless the next two biggest investors after Audax also decide to sell. Those are Canadian broadcaster CTV and Chicago investment firm Richland, Gordon & Co.; each holds a 20% interest in the company.

Anybody buying up the Audax, CTV and Richland Gordon stakes would control a majority of the company. But even then, only a strategic buyer might want to change management or fold Artisan’s 3,500-title library into a bigger entity.

Artisan, which also maintains offices in Santa Monica, employs about 190 people. Its annual overhead is about $30 million, with a large film and TV library generating the bulk of business.

The company also has recently restoked its film production operations. Upcoming releases include “Madison,” a Jim Caviezel-toplined actioner set for release Aug. 3, and “Eulogy,” a black comedy starring Hank Azaria and Jesse Bradford, due to unspool Oct. 17.

IPO nixed

There had been some talk about mounting an initial public offering in 2004, when Artisan is skedded to release its “Dirty Dancing” sequel, “Havana Nights: Dirty Dancing 2.” But the IPO option was nixed due to poor market conditions in a review of strategic options by Allen and Harris Williams (Daily Variety, March 25).

Other suitors for the Audax stake or even a bigger chunk of Artisan are expected to include an investment group led by film producer Stanley Jaffe and former USA Films exec Scott Greenstein. Another group eyeing the action includes Hollywood producer Todd Wagner and Dallas Mavericks owner Mark Cuban, who also holds a stake in Lions Gate.

The major Hollywood studios are not expected to be among the serious bidders, sources said.

Long shot

Lions Gate, while perhaps the most oft-mentioned Artisan suitor, actually reps something of a long shot to prevail, facing the ambitious task of buying the entire company, probably for at least $100 million. That’s a hefty sum for a company expected to spend at least a portion of its second offering proceeds to buy out one or more of its own private equity investors.

There’s little interest at Artisan in a merger of equals with Lions Gate, sources said. The Vancouver-based company could make a stock-based offer for Artisan, but that could prove difficult with its shares closing off 7¢ at just $1.87 Monday and an $80 million market cap.

A company source said a more likely route might involve Lions Gate making a combo bid for Artisan with an institutional investor. Lions Gate, which has a 75% public float, has private equity investors including Fidelity Investments (14%), ex-Trimark topper Mark Amin (8%), Gordie Crawford’s Capital Group (5%), Paul Allen’s Vulcan Ventures (5%) and Lions Gate founder Frank Giustra (4%).

S.G. Cowen Securities is managing Lions Gate’s secondary offering. The offering involves some 15 million common shares and a possible over-allotment of another 2.2 million shares.

The move will increase not only Lions Gate’s public float but perhaps also its coverage on Wall Street. Nothing’s guaranteed, but it would appear likely Cowen analyst Lowell Singer could initiate first-time coverage of the stock after the offering.

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