lionsgate-logoIn the latest salvo in the bare-knuckle brawl of rhetoric between Lionsgate management and Carl Icahn, Lionsgate sent a missive to shareholders pointing up the futility of performance by his past takeover targets, particularly those in media. The letter comes two days before the expiration of Icahn’s $7 per share offer, one he said will not  be extended again.

The Lionsgate letter to shareholders charges that “Carl Icahn has a long history of destroying shareholder value,” and cites a 96% share price decline while Icahn was a board member of Blockbuster, a 99.8% drop in share value while Icahn was chairman of the board at WCI Communities, before it filed for bankruptcy; an 80% decline in share value while Icahn was chairman of the board of XO Holdings; and a 68% decline in American Railcar since Icahn took over that company. The missive doesn’t disclose ventures where Icahn achieved success, but claims in particular that his track record at Blockbuster indicate “his obvious lack of knowledge and understanding of the media business.”

Lionsgate also hammers Icahn over his track record as a distributor of low-budget films, which is described by the missive as “an abject failure.” Icahn backed Stratosphere Entertainment in 1997 with distribution vet Paul Cohen. The intention was to release 12 films annually predicted to gross between $3 million and $30 million worldwide. None of the films, which included Hideous Kinky and One Tough Cop, grossed more than $1.3 million, before the venture folded in 2000. “Clearly, Mr. Icahn did not know how to run a movie company back in 1997 when he founded Stratosphere and has done nothing to prove that he knows how to run one now. Do not let him destroy the value of Lionsgate.”

The missive comes at a time when Icahn seems to be peaking. While his offer initially seemed to be withering, it was given a boost when Mark Cuban publicly said he might tender his 5.3% stake in the company to Icahn, who owns 19% himself and with another 4% of shareholders signing up for the share offer. He got a poison pill provision knocked out, and Lionsgate wasn’t helped by the non-performance of the $70 million Ashton Kutcher-Katherine Heigl comedy Killers.

Icahn today reiterated his call for an overhaul of management and the board of directors, as well as a round of drastic cost-cutting. He went after Lionsgate management for last Friday’s statements that “congratulated itself on an adjusted $128 miillion EBITDA,” but noted that $110 million of its cash flow came from the studio library. “There seems to be near universal agreement in the industry that library values are melting away like ice cubes,” Icahn said. “As a result, it is not hard to believe that this $110 million will be drastically reduced in the near future, due primarily to the precipitous decline in DVD sales throughout the industry. However, Lions Gate’s high interest costs of $56 million will stay the same. In addition, MGM and Miramax (both basically library plays) have been for sale for many months but have failed to obtain a buyer. How much longer can Lions Gate’s film library be counted on to drive performance and to service the company’s staggering debt load? Am I the only one who sees a hurricane brewing?”

The storm should blow through by later this week in the form of a proxy battle, but there is bound to be a lot more gusts of hot air before this one is over.

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