The board of directors at Lionsgate has said “no thank you” to a bid by activist investor Carl Icahn to up his ownership stake to just below 30% of the company. Although Icahn’s offer is above the public trading price, the board calls it “inadequate.”
Icahn made a tender offer last month to buy up to 13,164,420 shares of Lionsgate for $6 each. At the time that was a 15% premium to the public trading price and the stock continues to trade a bit below the Icahn offer. If Icahn is successful, he will increase his stake in the movie and TV production/distribution company from 18.9% to 29.9%.
There’s not much the company can do to block Icahn, but it has set a May 4th vote on a poison pill provision which would prevent Icahn from acquiring majority control of the company without approval of the board. In the meantime, it has advised shareholders not to tender their shares to the offer, which is due to expire April 29th.
“The Lionsgate Board of Directors strongly believes that the unsolicited partial offer by the Icahn Group is inadequate from a financial point of view and doesn’t reflect the full value of Lionsgate shares,” said a statement issued by Lionsgate Co-Chairman and Chief Executive Officer Jon Feltheimer. “Lionsgate is a strong and diversified Company with a focused strategy that we expect to generate far greater value for shareholders. We have built the Company piece by piece over the past 10 years through a patient, consistent and disciplined approach to both internal growth and external acquisitions. The Board and the Company’s management is committed to continuing to take all appropriate and necessary actions to build value for Lionsgate’s shareholders. We are confident we can better serve our shareholders by continuing to execute our strategic business plan, and the acquisition of effective control by the Icahn Group would significantly jeopardize that plan.”
While the Icahn offer is above the Wall Street trading price, the board notes that $6 per share is a 28.5% discount to the average price targets of analysts who follow the stock, as of March 4th. In advising shareholders to reject the tender, the board charges that Icahn is trying to obtain effective control of the company for only $80 million, without paying any control premium.
Perhaps more importantly, the board warns that “The acquisition by the Icahn Group of 29.9% of Lionsgate’s outstanding shares would constitute an event of default under Lionsgate’s credit facilities.”
“Under the terms of Lionsgate’s credit facilities, the Icahn Group’s acquisition would constitute an event of default that would permit the lenders to accelerate the maturity of outstanding borrowings. Furthermore, if such event of default were not waived or cured, the holders of certain outstanding notes issued by Lionsgate’s wholly owned subsidiary would have the right to accelerate the repayment of such notes. As of March 8, 2010, $472.1 million in total principal amount of such notes were outstanding and Lionsgate had borrowings of approximately $44 million outstanding under the credit facilities,” the board warned shareholders.