Breaking News! UPDATE AND WRITETHRU: I’ve been reporting this month that Carl Icahn revved up his buying of Lionsgate stock again. Now the mini major has confirmed that it has received “an unsolicited tender offer from Carl Icahn to acquire up to 13,164,420 common shares of Lionsgate which, together with the common shares he already owns, would constitute approximately 29.9% of the outstanding common shares of Lionsgate. The purchase price will be USD $6.00 per share in cash.” Lionsgate said it would review his proposal. But this would make corporate raider/shareholder activist Icahn one of the single largest shareholders in the film and TV studio (only Mark Rachevsky and Steinberg Assert Management have as much or more), something that Lionsgate management has been moving heaven and earth to stop. Because Icahn would replace Lionsgate’s moguls and more than likely hand over reins of the company to his son. But, to date, Lionsgate won’t let the Barbarian At The Gate come inside the company and grab those 3 to 4 board seats which Icahn has been seeking.
Last week, Icahn raised his stake in Lionsgate to 18.7%, or 22,107,571 shares. Some financial sources told me at the time that Icahn may be buying these shares because Lionsgate shares are so low-priced now — in the low $5s — that he’s simply averaging down his cost basis. (Remember, Icahn originally bought millions of shares when the stock was trading between $10-$11.) And it’s still the case that if he owns more than 20% of Lionsgate stock, it triggers a bank default. (Lionsgate’s lenders, led by JP Morgan Chase, insisted on amending the company’s $340 million credit facility and adding the default covenant.)
But it’s clear that Icahn is not only going to hang onto his shares but also believes he can clear the 20% hurdle. In his own statement about the tender offer, Icahn said: “Lionsgate has stated that its senior revolving credit facility provides that a change of control, which includes a person or group acquiring ownership or control in excess of 20% of its outstanding common shares, will be an event of default that permits lenders to accelerate the maturity of borrowings thereunder. If such an event of default or acceleration occurs, it will not be a condition allowing the Icahn Group to withdraw the Offer. However, it is our understanding that any such event of default could be avoided through a waiver by the lenders under the senior revolving credit facility or through Lions Gate’s prepayment or elimination of the senior revolving credit facility.”
Icahn’s aggressive move today seeks not only to put Lionsgate on the defensive but even tie the studio’s hands on acquisitions. Lionsgate has been tipped as a bidder for both the MGM and Miramax libraries. But, among other customary conditions, Icahn’s offer was “conditioned on Lionsgate not entering into any material transaction outside of the ordinary course of business (including any acquisition of assets over $100 million, and any issuance of securities other than upon the exercise of currently outstanding options). “He is sending a strong message in his tender that he doesn’t want LGF buying Miramax or MGM,” a film financing source emailed me. “Buying either of those assets may make sense for LGF management (they become bigger players in Hollywood), but such an acquisition would add tremendous debt to the company. And if they gave stock to a seller, then it would dilute Icahn’s stake.”
Also, it’s important to note that Icahn doesn’t have to buy the additional 13 million shares. He can stop at any time. So there’s no downside for him, and instead plenty of upside — like the fact that the stock price may increase now. In fact, Lionsgate share price went up about 8% today after the announcement. But when investors realized what the tender really was all about, it pulled back — and Lionsgate stock only went up 25 cents today.
Icahn had the opportunity to wage an expensive proxy fight for Lionsgate before last September’s annual meeting, but backed off after studio management hired a crisis team to fend him off. He tried to buy Lionsgate debt but had little success. Today’s offer, too, may or may not go anywhere. (In my view, he’s not offering enough of a premium.) But it’s damn interesting.