Tuesday, 16 February 2010

Hollywood Babble On & On #455: Icahn Doubles Down?

Welcome to the show folks...

Corporate raider and shareholder activist Carl Icahn has made an offer to up his stake in mini-major Lionsgate from around 18% to almost 30%.

Now if this deal goes through, it would have two major effects.

1. There is the possibility that the holders
of a revolving debt thingy would speed up their collection. Now the reason for this is because their contract stipulates that anyone buying more than 20% of the company will be considered by the lenders an "event of default," and they can demand their money faster. I'm not sure why, but the vagaries of corporate finance is where madness dwells. This rapid maturation of their debt, could compel the company to sell more shares or debt to Icahn, giving him more power over the company.

Now Lionsgate can get special permission from their lenders to allow this sale to go through without the "event of default," but even if they get that, it could still result in Icahn getting something he wants. That brings us to the second major effect.

2. If this deal does go through, with or without the special consent of lenders, Lionsgate will have to drop out of its bid for MGM. The reason on paper is that a Lionsgate purchase of MGM will bring on not only the venerable studio's library, but also MGM's rather massive debt. The most likely strategy Lionsgate could use to purchase MGM is to offer shares in Lionsgate to those stakeholders, thus diluting any value this purchase give Icahn.

But like I said, that's the reason on paper, in the real world it can mean something very different.

And this is where it gets tricky.

You see Carl Icahn is also buying MGM's debt like a sailor on shore leave, which when combined with his work on Lionsgate, if it works out, could land him a studio, no matter which one.

1. The fewer bidders there are vying for MGM, the odds of a deal that could please the stakeholders decrease. Leading to those stakeholders, Icahn chief among them, to convert their debt into ownership in the company. Icahn FTW.

2. If Lionsgate does buy MGM, they get MGM's debt, and could trade that debt for stock ownership in Lionsgate. Icahn instantly gets a bigger chunk of Lionsgate this way as well. Icahn FTW.

3. If someone else, like Time Warner, or News Corp., buys MGM, then Icahn has a more stable platform for him to make some money of off MGM's debt, with less risk. He can then use that money to either continue pursuing Lionsgate, or buying Overture, or Miramax. Icahn FTW.

4. If Lionsgate turns down his offer, their stock value could be hurt by the uncertainty, their creditors could get uneasy, and then let Icahn make his move, which he can do at a lower price. Icahn FTW.

Either way, Icahn seems intent on getting himself a film company, it could be Lionsgate, it could be MGM, it could be both. We'll just have to watch and find out.


  1. http://tv.yahoo.com/blog/is-the-new-tonight-show-already-in-trouble--994

    Did you hear? The Tonight Show may already be in trouble. As bandleader Kevin Eubanks is now leaving to "try other things"

    Which is a code word for "I'm jumping off this sinking ship to save my career."

    Meanwhile Letterman's ratings are on the rise.

    I thought this was going to happen, Zucker trying to fix one mistake (Leno in Primetime) instead make an even bigger mess. Screw over Conan and poison the Tonight Show brand with a network already suffering from bad ratings.

  2. Losing Eubanks is one thing, but what will really damage the show will be Leno's insecurity when it comes to booking comedians.

    He used to only book ones that couldn't possibly replace him. Now he's got to avoid the team Conan supporters too for fear they'll call him out on his perfidy.