Icahn, Lionsgate terminate talks; Icahn offers to buy debt (BLOOM, DHD, TW, WSJ, VAR, THR)

By Nancy Tartaglione-Vialatte

UPDATE: Bloomberg is reporting that Carl Icahn has offered to buy as much as $325 million of Lionsgate's convertible debt.

The billionaire investor announced the tender offers in an e-mailed statement today, says Bloomberg. Terms will be announced later, he said.

Previously (from DHD, TW, WSJ, VAR, THR):

Carl Icahn has broken off talks with Lionsgate, the activist investor announced on Wednesday. In recent weeks, Icahn has been amassing a larger stake in the indie and now owns 14.5% of the stock. His ex-investment officer Mark Rachesky now has 19.4% of the company. Icahn was angling for board seats but with the discussions now ended, speculation on a proxy fight or a hostile takeover is ramping up.

Icahn's statement said the talks collapsed over terms of a "standstill agreement" that Lionsgate had requested, which would have limited the size of Icahn's stake. Should his stake exceed 20%, it could trigger a "change in control," which in turn could create problems with Lionsgate's credit facility.

Lionsgate for its part said the company "concluded that it could not meet [Mr. Icahn's] requests and continue to serve the best interests of all of our shareholders."

Icahn had previously said in an SEC filing that he might attempt to add directors to the Lionsgate board either by expanding the current board or removing current members. Icahn's son Brett is believed to be one of the additions he would seek to make. Conflicting reports say that Icahn has been seeking 2 or more board seats.

Because Lionsgate is based in Canada, it must maintain a two-thirds majority of Canadians on the board. Two of the four American board seats are already held by Lionsgate co-chairman/CEO Jon Feltheimer and vice chairman Michael Burns.

Other issues that could complicate an attempt at a hostile takeover include a requirement that any bid for a change of control of the company trigger a tender offer for the entire company. A bid for change of control would come into play if any shareholder amassed more than 20% of the company. As DeadlineHollywoodDaily.com points out Icahn and Rachesky combined have almost 35%.

The studio declared a fiscal third-quarter loss of $93.4 million and has been struggling on several fronts, having been forced to cut the number of releases on its slate from 16 to 12, says TheWrap.com. Further, notes TheWrap, a Goldman Sachs film fund ended its financing agreement with the studio in the wake of the poor performance of numerous releases including "Disaster Movie" and "Punisher: War Zone."

And, longtime head of Lionsgate's movie unit, Tom Ortenberg, left the company recently to work with Harvey and Bob Weinstein.

Still, Lionsgate recently had a huge hit with "Tyler Perry's Madea Goes to Jail" and announced a deal with Perry last week for two more films.

DHD, which has been following the developments closely, sums up:

So now the only question left is: What does Carl want? To force a sale or breakup of the company, as some have speculated? But if Icahn really believes Lionsgate is undervalued, as he has said over and over for years, and now put his money where his mouth has been, he may believe in the value of content. He's also smart enough to know that when you can amass a huge stake like this in a company during a shutdown of the Mergers & Acquisitions markets, you don't go selling it right away for a small premium. You improve the operations of the company by cutting costs, and then you wait for a recovery, and then you seek a sale.

Dennis Miller, a former Lionsgate exec who is now general partner in venture firm Spark Capita, told Variety, "I don't know that [Icahn] has a quarrel. I just think he saw a value and he wants control. But people are still trying to figure out what that control means."

Related Links

NASTY! Icahn Ends Talks With Lionsgate (DHD)
Takeover Threat Looms as Icahn Ends Talks With Lionsgate (TW)
Icahn Ends Negotiations With Studio (WSJ, sub)
Lionsgate, Carl Icahn talks collapse (VAR)
Carl Icahn, Lionsgate can't make a deal (THR)