“Lions Gate Entertainment Corp. may be flirting with bankruptcy, according to Carl Icahn, the billionaire investor attempting a hostile takeover of the movie studio.” – Business News Network 6/11/2010
The contentious battle over control of Lions Gate Entertainment (LGF) has heated up between activist investor Carl Icahn and the current board of directors. The two parties have exchanged a series of open-letters regarding Icahn’s hostile bid to buy the company for $7 per share for the Vancouver-based movie studio and television producing unit; a price that the board believes is much too low. The latest development is that Icahn has made it known that he will not extend his $7 offer past the current deadline next Wednesday. Furthermore, he is looking to acquire 6.4 million shares currently held by Mark Cuban, which would push Icahn’s stake over the 20% threshold that may trigger a default on some of its debts. The Dallas Maverick’s owner has hinted that he may be interested in tendering his shares to Icahn. It seems the two parties are in a game of chicken and the remaining shareholders are just along for the ride.
From what we have read only 3.7% of outstanding stock owners had accepted Icahn’s offer to this point, but perhaps many where hoping to entice him to raise his offer again. He has already raised it once from $6 to $7, but it is highly unlikely that he will raise the offer now. For its part, Lions Gate management is working with one of its lenders, JP Morgan (JPM), to waive or amend its $340 million credit facilities to help it withstand the current turmoil imposed by Icahn’s actions. They are also calling on Icahn to disclose the terms of the bridge loan that he is proposing to give them company, which seems a reasonable request at this point.
At this point, it seems like Lions Gate management is spending more time fending off Icahn’s hostile bid than actually getting business done. We wrote back in March about this situation (Lions Gate: Worth More Than Icahn’s Offering) that we believed the stock could fetch as much as $10 per share, but at this point that looks to be far-fetched. We will be interested to watch this drama continue to play out, but we wonder if Icahn may finally be starting to wear down both management and shareholders. Unless they can convince JP Morgan to give them some leeway on their credit facility, it will no longer be up to them and they may have their options shrink rapidly. If there is one thing we know, this hostile bid just keeps getting more hostile by the day.