Until this week, the only official disclosure from corporate raider/shareholder activist Carl Icahn has been that he’s buying up Lionsgate stock because it’s “undervalued”. But that all changed on Monday. It’s not just that Icahn (not pictured above) purchased still more Lionsgate stock so that he now has 16,540,849 shares, representing approximately 14.28% of the mini-major. It’s that he amended his schedule 13D SEC filing, which is a statement any person owning 5% or more of a publicly traded company must make for certain disclosure reasons, like when their intentions change. Added Icahn:
Item 4. Purpose of Transaction
Item 4 of the Initial 13D is hereby amended to add the following: The Reporting Persons may seek to add nominees designated by the Reporting Persons to the Issuer’s board of directors (the “Board”), which could include expanding the size of the Board and/or removing individuals from the Board. The Reporting persons may take any such action at the Issuer’s next annual meeting of shareholders or at a special meeting which the Reporting Persons may call.
What this means is that Icahn may seek to add his nominees to Lionsgate’s board of directors and/or potentially remove existing members. This is a declaration he intends to change the way that the company is run.
In addition, Icahn purchased about $1,000,000 of Lionsgate debt which is likely trading at a significant discount to par value (100%) because of 1) low interest rates, 2) the sharp decline in the share price, 3) the decrease in cash on the balance sheet, and 4) the assumption that debt will increase with Lionsgate’s purchase of the TV Guide Network and TV Guide Online properties. In fact, Lionsgate repurchased about $6,000,000 of its debt on the market last quarter for 60 cents on the dollar.
“This is significant because I don’t see any reason for Icahn to purchase the debt in LGF other than to really make a move on this company,” one of my sources tells me. “If the company is sold, the debt has a covenant that forces any potential purchase to pay 101 cents for every 100 cents of debt. If he purchased the debt for 60 cents, he can make a quick 41 cents, or 66%, on his purchase. In the alternative, if he takes over the company himself, he can retire the debt he owns for 60 cents on the dollar, making the acquisition that much cheaper.”
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