The battle between Lionsgate and Carl Icahn has entered the trench warfare stage with both sides blasting each other on a daily basis.
Icahn, who owns 19% of the minimajor and launched a hostile takeover last week, contends management is so broken that bankuptcy is inevitable. Placed on the defensive, Lionsgate’s topper Jon Feltheimer counters that he has followed a successful strategy and that Icahn has substituted vision for a smokescreen to hide his desire to get the company at a bargain-basement price.
All of this came to a head with the binding offer Lionsgate made earlier this week to acquire MGM — a strategy that Icahn opposes and implies is emblematic of the wrecked vision that is threatening the company.
“You claim that I offer no ‘meaningful vision,’ thereby implying that you have one,” Icahn said in an open letter to Feltheimer a day after the company officially rejected his $6-a-share bid as inadequate and coercive. “I cannot help but wonder why your ‘vision’ — if so ‘meaningful’ — never translated into shareholder value?”
He noted that the stock reached a high of $11.40 six years ago in the wake of the company’s acquisition of Artisan, then began declining in 2008 to a low of $4.85.
“If the stock price of a company remains stagnant for years, as it has with Lionsgate, then clearly something is wrong,” said Icahn. “I suggest that your directors have failed shareholders. They have never taken a long hard look at this “meaningful vision” you claim to possess and have not been willing to hold you accountable for it.”
Investors drove Lionsgate stock well past Icahn’s offer price as shares rose 26¢ to $6.25 on Wednesday.
In light of the rising stock price, Lionsgate asserted that Icahn was “simply attempting to distract shareholders from the obvious — his offer price is woefully inadequate.”
“Our track record of successful growth over the past 10 years is evidence that we continue to move Lionsgate in the right direction,” the company said. Lionsgate also repeated earlier claims that it’s achieved profitability on approximately 70% of film releases over the past ten years — one of the highest success rates in the industry.
“Our television business has grown from annual revenues of $8 million in 1999 to approximately $350 million this year,” Lionsgate said. “We have been focused on financial discipline in developing new television product. Our hit shows ‘Mad Men,’ ‘Weeds’ and ‘Nurse Jackie’ are leading shows in the television business and have achieved critical acclaim, a devoted fan base and economic success.”
Lionsgate also said its 12,000-title library has generated an average of $267 million in annual revenue for the past three years.
Analyst Matthew Harrigan of Wunderlich Securities agrees that Lionsgate has a good record of achievement. He told Daily Variety that Icahn’s refusing to recognize the accomplishments of Lionsgate management.
“Lionsgate has always executed well on the mergers and acquisitions front,” he added. “They’re betting the farm on the MGM deal but they’re definitely not in over their heads.”
Still, Icahn concluded his letter by noting that Feltheimer should be “frustrated by the five-year stagnation of the stock.”
“But more importantly,” he wrote, “I am fearful that you have determined to ‘swing for the fences’ using excessive debt and risking the shareholders’ equity. The road to bankruptcy is littered with companies whose CEOs — under the banner of “vision” — have been permitted by lax board oversight to gamble their companies into oblivion.”