Billionaire investor Carl Icahn said he has not spoken recently with Lions Gate Entertainment Corp
Icahn, who controls 14.5 percent of Lions Gate shares, has launched an offer to buy $325 million worth of convertible notes issued by the studio, producer of the popular Saw and Tyler Perry movies, and the Mad Men cable TV series.
If Icahn were to successfully buy the debt and convert it all into equity, his stake would double to about 28 percent to 29 percent. The offer expires on April 20.
Lions Gate said on Thursday its board decided to adopt a neutral stance toward the activist shareholder's tender offer, but warned that, if Icahn owned more than 20 percent of the company, it may constitute a change in control that could result in default and accelerated payment obligations on another Lions Gate credit facility.
Icahn told Reuters in an interview he had not spoken with Lions Gate recently and that the terms of his tender offer were good. He had offered to buy the notes due 2024 at a 25 percent discount and the notes due 2025 at a 27 percent discount to their principal value.
They should also consider that the offer is at a meaningful premium to where it last traded before we announced the offer, Icahn said.
But at least one major bondholder, John Kornitzer, whose Buffalo Funds owns about $96 million worth of convertible bonds, said he did not like Icahn's offer.
I think Icahn ought to just go away, simple as that, said Kornitzer. He should leave the company alone and let management pay attention to running the company.
Kornitzer does not plan to sell any Lions Gate bonds.
If he wants the bonds, tell him to pay par. This is just a way for him to put pressure on the company, he said.
Lions Gate said on Thursday one benefit in holding on to the convertible notes is a put option linked to Lions Gate's share price. Beginning October 15, 2011, holders of the notes due 2024 can ask the company to repay the principal and interest in cash if Lions Gate's share price is still below $11.50. For holders of notes due 2025, their put option can be exercised from March 15, 2012, if the stock is below $14.28 a share.
Talks between Icahn and Lions Gate broke down earlier this month after they clashed over certain aspects of a standstill agreement the studio demanded of the billionaire investor before giving him board seats.
Icahn has criticized Lions Gate for spending too much on overhead and for its recent $255 million purchase of the TV Guide cable channel. He has not outlined his plans for the studio should he get control, saying only he does not want to push for a sale in the current environment.
Icahn has also said recently he may wage a proxy war to gain more control of Lions Gate, which has assembled an advisory team to launch a defense against him.
On Thursday, Lions Gate said Icahn has not made, or announced, any plans to make an offer to buy common shares of Lions Gate's parent entity.
Lions Gate has a current hit in theaters with Tyler Perry's Madea Goes to Jail, but last month posted a quarterly net loss of $93.4 million due to other underperforming movies.
If Lions Gate had not had a really disappointing streak at the box office a few months ago, we wouldn't be discussing Icahn's strategy right now, but that's the nature of this hit- driven business, said Marla Backer, an analyst with Research Associates.
The irony is they have a hit now and they're working the phones so that major shareholders understand the strategy for the firm.
In addition to Kornitzer, the company appears to have also enlisted the support of its largest investor, Mark Rachesky, who formerly worked with Icahn.
Rachesky's MHR Fund Management LLC, which controls a 19.999 percent stake in Lions Gate, said in a filing this month it is principally supportive of the media company's management and their publicly stated strategies.
MHR said it has had preliminary talks with Lions Gate about nominating a candidate to the studio's board.
Lions Gate shares fell 11 cents, or 1.99 percent, to close at $5.41 on the New York Stock Exchange.
(Editing by Richard Chang and Andre Grenon)