Lions Gate Entertainment Corp. is basking in critical acclaim and an Oscar win for one of the stars of its breakout film of 2009, but the company is also fielding a hostile takeover attempt at a price that is less than precious.
The studio behind the lauded Precious: Based on the Novel Push by Sapphire announced Friday it has received an offer from the Icahn Group, headed by well-known activist shareholder Carl Icahn, to buy up to all of the company's outstanding common shares for $6 (U.S.) each.
Last week, Mr. Icahn offered to increase his stake in the company to 29.9 per cent from 18.9 per cent, also for $6 per share. Lions Gate's board responded by drawing up a shareholder rights plan - or poison pill - essentially arguing against any attempt to exert control over the company without giving all shareholders the right to take advantage of the offer.
The Lions Gate board called the $6 bid "financially inadequate" and not in its shareholders' best interests. With no increase in the price, the board is unlikely to change its position on the offer.
For more than a year, Mr. Icahn has criticized management for exploring a bid on the Metro-Goldwyn-Mayer Inc. studio and Walt Disney Co.'s Miramax Films division, arguing that film libraries are not a wise investment. Both MGM and Miramax own a large collection of films.
"I believe library values are currently declining due to, in part, weak DVD sales," he said in a statement Friday, and reiterated his claim that shareholders should be allowed to vote on such an action.
In the statement, Mr. Icahn said his group's $6-per-share offer represents a 23-per-cent premium, based on the stock's closing price on the most recent day this year before Icahn Group started purchasing Lions Gate common shares.
However, Mr. Icahn's offer is below what most analysts say the company should be worth. The average stock price target of nine analysts tracked by Bloomberg is $8.22.
"Mr. Icahn's original offer was an attempt to control the company with a minority stake, and without a control premium. Now he is going for full control without a control premium," Peter Wilkes, a spokesperson for Lions Gate said Friday.
"If shareholders were unlikely to sell 10 per cent of the company and give up modest control for $6 a share, we think it's unlikely they would sell 100 per cent of the company for $6 a share," RBC Dominion Securities analyst David Bank wrote in a research note.
Shareholders are due to meet on May 4 to discuss last week's proposed rights agreement. That meeting is still expected to take place, even though Mr. Icahn's offer to buy up all the shares effectively negates the poison pill strategy to thwart his attempts at control.
Mr. Icahn, well known for such hostile bids, ranks number 59 on Forbes' list of the world's richest people, with an estimated net worth of $10.5-billion.
The majority of Lions Gate's major shareholders are investment firms such as MHR Fund Management LLC, which owns a 20-per-cent stake. To be successful, Mr. Icahn will have to convince them to sell him enough shares to increase his stake to at least 50.1 per cent. His offer, which expires April 30, is conditional on raising at least that much.
Mr. Icahn wants to replace the board of directors with his own nominees - many of whom are Canadian. The company is based in Vancouver, but has significant operations in Santa Monica, Calif., and the majority of its executives are in the U.S. "Lions Gate's board and management team are focused on leading the company and are committed to building value for all of our shareholders," Mr. Wilkes said.