Thursday, 25 March 2010

Hollywood Babble On & On #478: The Battle of Lionsgate!

Welcome to the show folks...

Corporate raider/shareholder activist Carl Icahn is now in a full blown war of the words with Lionsgate's management and board of directors.

Here's a little video from CNBC where Carl Icahn makes his points (h/t Nikki Finke):

Now some of you won't be patient enough to watch a CNBC business news video, so I'll give you some of Icahn's major points.

1. If Icahn's purchases of Lionsgate stock goes above a certain percentage, the interest rates and repayment schedules on Lionsgate's $600 million debt goes completely bugshit due to some complex covenants in their loan agreements.

2. Icahn calls these covenants a "poison pill" because the sole reason for their existence is to force anyone who wants to buy or sell large amounts of Lionsgate stock to get the approval of the board. This prevents anyone whose name rhymes with Karl Icon from making a serious takeover play without their approval, which isn't coming, because it could cost those same board members and executives their jobs. He has a case, there's no rational financial reason for these debt covenants other than to scotch a takeover.

3. Icahn isn't happy with Lionsgate making a play for MGM, which they recently pulled out of. His case is that it's more ego driven than money driven, because it would require the adding of possibly a billion dollars plus in debt to the already debt ridden company. Icahn's case is to get Lionsgate's own house in order before trying to add on anything else. (Note: Icahn also is buying up a shit-load of MGM debt, which if the MGM auction goes bust, puts him in a position to make a play for at least a piece of that troubled studio himself.)

4. Icahn isn't happy with Lionsgate's movie choices. They have been moving away from distributing independent films, and producing more of their own, bigger productions. The problem is that a lot of those productions lost a lot of money, and isn't bringing in the value that Icahn thinks the shareholders deserve. Icahn's case is to go back to what they did best, and to do it with modest budgets, and not play at being a big studio.

5. The Lionsgate management/board faction claims that Icahn's offer of $6 a share is insulting, and nowhere near the real value of the company. Icahn's argument is that if it's too low, then no Lionsgate shareholders will sell share's to him. Though some reports say that he's willing to go up to $7.50 a share.

Now while I normally revel when rich men fight, I do have a concern that all this fighting will only hurt the Lionsgate staff in the end. I think some sort of accommodation must be made between them, and then maybe they can work together to make Lionsgate a real success story.

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