Icahn Looks to Replace Lionsgate Board

NEW YORK: Financier Carl Icahn has said that he intends to seek the replacement of the board at Lionsgate, which he claims may be headed towards bankruptcy.

Icahn issued a new open letter to the independent studio today. He has been attempting to take control of Lionsgate through an open tender offer to shareholders of $7 per share. Mark Cuban has indicated that he is planning to tender his shares—a 5.4-percent stake—to Icahn. The tender offer expires on June 16. Icahn says he believes he will soon be Lionsgate’s largest individual shareholder.

In the letter, Icahn expresses his concern over the board’s "apparent ambivalence regarding Lions Gate’s fate. I am truly mystified by some of your actions—and your inaction—in the face of the abject failure of the current management team to deliver value to shareholders, and I fear for the future of our company."

Icahn notes, as Lionsgate has done repeatedly, that his acquisition of shares could trigger a default of the studio’s loan facility. He notes: "Our purchase of even the 3.7 percent of outstanding shares that were tendered into the offer and not withdrawn as of our last announcement would already be enough to trigger this domino effect which, unless your lenders were to waive these defaults, could lead to the ultimate implosion of the company. What I find to be the most egregious part of this problem is the fact that it was created entirely by you—had the board not agreed to these controversial ‘poison put’ provisions in the first place, shareholders would not be in the dire situation in which we now find ourselves."

If this were to happen and no waivers are issued, Icahn says, Lionsgate "may find it necessary to pursue a voluntary bankruptcy filing."

He continues: "I am extremely concerned about this possible eventuality and I would imagine that other shareholders are similarly afraid of having their equity wiped out. That being the case, I find it amazing—and a frightening dereliction of your fiduciary duties—that you have ignored our offers, made publicly on several occasions, to discuss with the board the terms of a possible bridge facility that we would be prepared to provide—without a commitment fee—as a preemptive measure in order to permit Lionsgate to refinance its debt in the event of any such defaults."

The letter goes on to say: "Although we suspect that you will continue burying your heads in the sand with respect to this impending disaster, we advise you again that we stand ready to begin discussions with you immediately regarding the terms of a bridge facility."

In addition to criticizing the actions of the board, Icahn takes issue with Lionsgate management. "A cursory review of recent press reports yields many references to management’s lavish new offices, their huge salaries and more than a few mentions of the Bentley driven by CEO, Jon Feltheimer. Sadly, however, one is hard pressed to find the stories detailing how management is committed to increasing earnings per share by attempting to boost revenues and cut costs. … As a shareholder, I’m forced to ask how much longer this board of directors will allow the party in the management suite to continue. How long can management continue to claim ‘record performance’ while cash flow remains anemic and the stock price remains in decline? Since the board is clearly unwilling to tell the Emperor he wears no clothes, it is left up to the shareholders to take action. We therefore intend to conduct a proxy solicitation to seek to replace the board with our nominees at the upcoming annual general meeting of shareholders. We are hopeful that a newly elected board will act expeditiously to replace management and hold the new team accountable for performance moving forward."