Lionsgate Investors Wary About Stock Sale And Lowered Earnings Forecast

Lionsgate investors are trying to read the tea leaves after the independent studio announced last night that Chairman Mark Rachesky will sell about 22% of his stake in the company — and it disclosed that earnings are tracking at the low end of executives’ guidance.

The stock price is down 7% to about $31.30 in morning trading. Lionsgate says today that Rachesky’s stock will sell for $32.00 a share.

Investors took notice of a line tucked into the company’s SEC filing. It said financial results are “currently tracking within the lower range” of Lionsgate’s prediction that cash flow would come in between $1.2 billion and $1.3 billion in the three fiscal years ending March 31, 2017.

That may reflect “recent box office underperformance of Mockingjay 1, Insurgent, and Mordechai,” says PiperJaffray analyst James Marsh. FBR & Co’s Barton Crockett also believes the adjustment “presumes a Mockingjay Part 2 performance on par with Part 1.”

Many also are trying to interpret the implications of Rachesky’s decision to reduce his stake in Lionsgate to 28% from 35%.

The sale “likely implies that a deal for the entire stake with a strategic acquire is not to be,” Stifel’s Benjamin Mogil says. The rumor mill churned with speculation of a possible sale to an overseas company — such as China’s Alibaba or Wanda Group — looking for a foothold in Hollywood.

Crockett also finds it interesting that Rachesky isn’t selling his shares to Liberty Media Chairman John Malone, who recently picked up a 3% stake in Lionsgate and a seat on its board. But he says he still believes that “Lionsgate shares could, over time, end up being accumulated bu Malone or other strategic investors.”



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