Could they shout it any louder?
For what seems like the 10th time, Lionsgate said on Wednesday that its board has unanimously rejected Carl Icahn’s latest unsolicited offer to buy the studio’s common shares, and urged its shareholders to resist the activist investor’s takeover bid.
Lionsgate called Icahn’s April 15 offer of $7.00 per share “financially inadequate, opportunistic and coercive and is not in the best interests of Lionsgate, its shareholders and other stakeholders.”
That follows their recommendation to reject his previous ofer of $6.00 per share. Problem is, Icahn is one of those guys who has scooped up a cool billion dollars during the financial turmoil of the past 18 months.
In recent weeks, the studio’s board has rejected all of Icahn’s offers.
All of Lionsgate’s directors and executive officers have informed Lionsgate that they do not currently intend to tender their shares into the offer, the company said.
“We believe that the Icahn Group’s offer remains financially inadequate and does not reflect the full value of Lionsgate shares,” Lionsgate co-chair and CEO Jon Feltheimer said in a statement. “We believe that the offer pales in comparison to the value inherent in the world class platform we have established over the past ten years.”
Below, Feltheimer’s entire, 2,500-word letter to Lionsgate shareholders:
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Dear Fellow Lionsgate Shareholder:
On April 15, 2010, the Icahn Group revised its unsolicited offer to acquire up to all of the common shares of Lionsgate from U.S.$6.00 per share to U.S.$7.00 per share. Your Board, in consultation with its outside financial advisors and legal advisors, reviewed the amended offer carefully and determined that it is financially inadequate. The Board believes that the offer is opportunistic and coercive and is NOT in the best interests of Lionsgate, its shareholders and other stakeholders. All of Lionsgate’s directors and executive officers have informed Lionsgate that they do not currently intend to tender their shares into the offer.
In recommending that Lionsgate shareholders reject the Icahn Group’s inadequate offer and not tender their shares, the Board considered, among other things, that:
THE OFFER IS FINANCIALLY INADEQUATE AND FAILS TO REFLECT THE FULL VALUE OF YOUR INVESTMENT
THE OFFER IS OPPORTUNISTIC AND COERCIVE
1. The Offer Does Not Reflect the Full Value of the Shares
· The U.S.$7.00 per share offer by the Icahn Group fails to reflect the significant value that Lionsgate, under the direction of the Board, has built over the past 10 years.
· The Board believes that significant additional value would result from the continued implementation of Lionsgate’s business plan.
· Lionsgate is well-positioned to take advantage of recent media industry dynamics through the Company’s world-class media platform. This platform leverages creation, production and distribution across diverse channels, which affords Lionsgate sustainable competitive advantages and positions the Company to capitalize on emerging opportunities.
· The S&P 500 Media Index has increased more than the Icahn Group’s offer over the same time period. If Lionsgate’s shares had performed in line with the 20.3% increase of the
S&P 500 Media Index, the offer price at U.S.$7.00 implies a premium of only 11% over the adjusted price of $6.29.[1]
2. The Offer is Financially Inadequate
PLEASE BE SURE TO VOTE ALL YOUR SHARES AT THIS IMPORTANT SPECIAL MEETING. ALL PROXIES SHOULD TO BE RECEIVED BY THE COMPANY AND THE ELECTION SCRUTINEERS IN TORONTO, CANADA BY 10:00 AM ET, ON FRIDAY, APRIL 30, 2010, THE SCHEDULED CUT OFF FOR RECEIPT OF PROXIES FOR THE SPECIAL MEETING. ELECTRONIC VOTING BY INTERNET OR TELEPHONE WILL BE AVAILABLE UNTIL 11:59 PM ON THURSDAY APRIL 29, 2010. CALL MACKENZIE PARTNERS, INC. FOR ASSISTANCE AT (800)-322-2885 TOLL – FREE.
In connection with its review of the Icahn Group’s amended offer made on April 15, 2010, the Special Committee of the Board received a written opinion dated April 20, 2010 from Perella Weinberg, the financial advisor to the Special Committee, to the effect that as of such date and based upon and subject to the matters stated in its opinion, the consideration to be paid in the amended offer is inadequate, from a financial point of view, to the shareholders (other than the Icahn Group and its affiliates).
3. The Icahn Group is Deliberately Seeking to Violate Lionsgate’s Credit Agreements for its Own Benefit at the Expense of All Other Shareholders
This Could Have a Material Adverse Effect on Lionsgate’s Business
· If the Icahn Group crosses the 20% threshold, the Company could lose its primary source of liquidity to fund operations. Even acquiring as little as 1.26% of Lionsgate shares will put the Icahn Group’s ownership over the 20% threshold under our credit facility agreements. Lionsgate cannot assure shareholders that it will be able to obtain replacement financing on appropriate terms.
4. Icahn’s Bridge Facility Claim is Another Opportunistic Attempt
to Gain Control of Lionsgate
· Should the Icahn Group’s actions cause an event of default, the Icahn Group claims it is willing to provide a bridge facility to Lionsgate.
· Lionsgate cannot make any assurances on the cost, timing and restrictions that could be put on its business, or the likelihood that a satisfactory agreement could even be reached with respect to a potential bridge facility from Mr. Icahn or anyone else.
· Depending on Mr. Icahn for a bridge facility could make him concurrently Lionsgate’s largest shareholder as well as a large creditor and could give him enormous influence over Lionsgate.
5. The Icahn Group’s Relative Lack of Industry Expertise and Failure to Articulate a Sound Plan or Vision for Lionsgate Puts the Value of Your Investment at Risk
· The Icahn Group has limited expertise in operating a business in Lionsgate’s industry.
· Mr. Icahn’s “vision” for Lionsgate underscores his lack of experience with respect to Lionsgate’s business and the value of Lionsgate shares. In a March 24, 2010 interview on CNBC, Mr. Icahn stated that Lionsgate “should not be producing movies” and that he believed the Company does not “make a lot of money on these TV productions…TV does not make a company a lot of money.” He also implied that Lionsgate should limit itself to distribution only.
· Under Mr. Icahn’s proposed direction, Lionsgate would give up its movie business, which has been profitable on 70% of its film releases over the past ten years and its highly profitable TV business, which generates $350 million in revenue and is growing in profitability – both of which replenish Lionsgate’s library. In addition, lack of proprietary content would leave Lionsgate overly vulnerable to the scarcity of product in the acquisition market.
· Mr. Icahn’s involvement in Blockbuster raises serious questions about his knowledge and understanding of the media business. During Mr. Icahn’s tenure on the Blockbuster board:
o Blockbuster reported greater than $1.4 billion in losses;[2] and
o Blockbuster’s share price declined by 96%, plummeting from $10.05 per share to $0.40 per share.[3]
In addition, your Board is concerned at the prospect that the Icahn Group may “replace top management.” Lionsgate is uniquely positioned within the industry, and we look forward to capitalizing on the world class platform the Company has established – don’t surrender the value inherent in your Lionsgate investment to the Icahn Group.
6. The Timing of the Offer is Opportunistic
· The Icahn Group has timed its offer to exploit the challenging macro-economic operating environment currently impacting the media industry. Film and television library values are also currently being pressured in the short term by the numerous studio assets presently on the market. Finally, the offer does not reflect the significant value that recent Lionsgate investments, such as TV Guide Network and EPIX, are poised to create for Lionsgate’s shareholders.
· By setting the expiration date of the offer two business days before the scheduled date for the Special Meeting of Shareholders, the Icahn Group is also attempting to preempt the right of shareholders to choose to confirm the Shareholder Rights Plan in order to protect themselves against the Icahn Group’s inadequate, opportunistic and coercive tender offer.
7. The Offer is Coercive and Highly Conditional
· The Icahn Group has maintained a critically coercive feature of the offer that expressly reserves the right to waive its minimum tender condition. By reserving the right to waive the offer’s minimum tender condition, the Icahn Group is able to buy a small number of shares that could give it effective control.
· The Icahn Group refuses to make its minimum tender condition irrevocable.
· Lionsgate believes that this structure is unfair to its shareholders and could deprive them of making a meaningful, value-driven decision.
ICAHN CONTINUES TO FLIP FLOP ON LIONSGATE
Over the past few months, Mr. Icahn has contradicted himself regarding his intentions for Lionsgate.
· In February, Mr. Icahn stated: “We are not looking to take control of Lionsgate. To begin with, that is not in the picture for a number of reasons. One, Americans and old Canadian companies are frowned upon as far as taking control and we respect Canada and we are not in any way saying we want to control it, so I want to make that clear. We just want to have a say at the table…”[4]
· Mr. Icahn now says: “We intend to replace Lions Gate’s board of directors with our nominees. I am hopeful that the new board will act expeditiously to replace top management…”[5]
· Mr. Icahn changed his position with regard to Lionsgate’s operations.
· In February, Mr. Icahn also said that management “should stick to what they know best which is buying these small companies – and distributing them and also producing TV.”[6]
· Mr. Icahn now says that “You don’t make a lot of money on these TV productions…TV does not make a company a lot of money” and he has implied that the Company should limit itself to distribution only.[7]
Mr. Icahn’s flip flops and contradictory statements further demonstrate that Mr. Icahn lacks an understanding of and a coherent plan for the Company.
LIONSGATE HAS A COMPELLING GROWTH STRATEGY TO BUILD VALUE
Over the past ten years, the Board and management team have developed and executed a disciplined three-phase plan to create and build a diversified media business:
· Phase I: Building a leading independent motion picture business and library foundation
· Phase II: Growing a diversified TV business
· Phase III: Expanding into domestic and international cable assets and new media platforms including TV Guide Network, EPIX, FEARnet, Break Media, and Tiger Gate
As part of this plan, the Company announced on April 19, 2010 that EPIX had signed its sixth distribution deal, a nationwide distribution agreement with DISH Network. This agreement will result in EPIX becoming available in 30 million homes beginning next month. Lionsgate also announced that on April 5, 2010 it formed an equal partnership with Saban Capital Group to operate and manage Tiger Gate, the platform for branded action and thriller/horror channels, Kix and Thrill, which are launching across Asia.
Lionsgate’s business plan has been validated by the support of partners including JPMorgan’s One Equity Partners in TV Guide Network, Comcast and Sony in FEARnet, Viacom and MGM in EPIX, Saban Capital Group in Tiger Gate and StudioCanal in Lionsgate’s international businesses.
As part of its disciplined growth plan and in an effort to generate the most value for shareholders, the Company manages overhead carefully. Overhead in its core businesses was reduced in fiscal 2010, and the Company’s 8.5% overhead to corporate revenue percentage is one of the lowest in the industry. For fiscal 2011, the budgeted percentage is 7.8%.
LIONSGATE HAS THE RIGHT LEADERSHIP IN PLACE TO BUILD VALUE FOR SHAREHOLDERS
Since the beginning of 2000, when the current management team joined the Company:
· Lionsgate stock has appreciated by 186%.[8]
· The TV business has grown from annual revenues of $8 million to a projected $350 million.
· Lionsgate has achieved profitability on approximately 70% of its film releases.
· The 12,000-title library will achieve fourth straight record revenue year, projected to top $300 million for the year just ended (approximately $100-$110 million free cash flow).
· Revenues have grown from $184 million in fiscal year 2000 to over a projected $1.5 billion in fiscal year 2010.
LIONSGATE IS WELL POSITIONED TO OUTPERFORM
Lionsgate is well positioned to continue to outperform and deliver value to its shareholders by taking advantage of its world-class media platform which leverages creation, production and distribution across diverse channels:
· Lionsgate boasts one of its strongest upcoming slates with The Expendables, starring Sylvester Stallone, Killers, starring Katherine Heigl and Ashton Kutcher, Buried, and The Next Three Days, starring Russell Crowe. This slate follows the success of Why Did I Get Married Too? and Kick Ass, which opened number one at the box office last weekend.
· Successful TV shows Mad Men, Weeds, Nurse Jackie and Blue Mountain State have all been picked up for subsequent seasons on leading networks.
· Lionsgate expects to generate an average of $100 million to $125 million of annual free cash flow in fiscal years 2013 through 2015, even before factoring in significant value and earnings potential from TV Guide Network, TVGuide.com, EPIX, FEARnet, Break Media and Tiger Gate.[9]
PROTECT THE VALUE OF YOUR INVESTMENT IN LIONSGATE
VOTE FOR THE SHAREHOLDER RIGHTS PLAN ON THE WHITE PROXY CARD
Lionsgate’s May 4, 2010 Special Meeting of Shareholders is less than two weeks away and your support to confirm the Shareholder Rights Plan is critical to protecting the value of your investment in the Company.
Lionsgate’s Shareholder Rights Plan was implemented to ensure that:
· All of Lionsgate’s shareholders are treated equally and fairly in connection with any proposals to acquire effective control of Lionsgate;
· The rights of every shareholder are maintained; and
· Significant decision-making authority is afforded to shareholders.
The Shareholder Rights Plan your Board is recommending does not prevent change of control transactions. By design, the Shareholder Rights Plan does not prevent or restrict a proxy challenge, but deters inadequate, opportunistic and coercive offers, such as the offer by the
Icahn Group.
Glass Lewis, a Leading Proxy Advisory Firm, Believes Lionsgate’s Shareholder Rights Plan Is in Best Interest of Shareholders
In its report released on April 8, 2010, leading proxy advisory firm Glass Lewis & Co., said of Lionsgate’s Shareholder Rights Plan, “The permitted bid provisions adequately ensure that shareholders are able to consider a reasonable offer for the Company. Further, we note that the Rights Plan will expire in three years. In light of these shareholder-friendly provisions, we believe that the Rights Plan may serve to protect shareholders in the event that a takeover bid does not reflect the full value of the Company’s shares or is coercive. Consequently, we believe that shareholder ratification of the Company’s Rights Plan is in shareholders’ best interests.”[10]
The Board believes that the Shareholder Rights Plan is in the best interests of the Company, its shareholders and other stakeholders and recommends that you vote FOR the Shareholder Rights Plan on the WHITE Proxy Card. The Board also urges shareholders to discard any gold proxy card that they receive from the Icahn Group.
PROTECT THE VALUE OF YOUR INVESTMENT IN LIONSGATE
Lionsgate Urges Shareholders to Reject Icahn’s Latest Offer
Studio’s board says activist’s bid is “financially inadequate, opportunistic and coercive”
Lionsgate said on Wednesday that its board has unanimously rejected Carl Icahn’s latest unsolicited offer to buy the studio’s common shares, and urged its shareholders to resist the activist investor’s takeover bid.
Lionsgate called Icahn’s April 15 offer of $7.00 per share “financially inadequate, opportunistic and coercive and is not in the best interests of Lionsgate, its shareholders and other stakeholders.”
In recent weeks, the studio’s board has rejected all of Icahn’s offers.
All of Lionsgate’s directors and executive officers have informed Lionsgate that they do not currently intend to tender their shares into the offer, the company said.
“We believe that the Icahn Group’s offer remains financially inadequate and does not reflect the full value of Lionsgate shares,” Lionsgate co-chair and CEO Jon Feltheimer said in a statement. “We believe that the offer pales in comparison to the value inherent in the world class platform we have established over the past ten years.”
Below, Feltheimer’s entire, 2,500-word letter to Lionsgate shareholders:
REJECT THE ICAHN GROUP’S INADEQUATE OFFER AND VOTE FOR THE SHAREHOLDER RIGHTS PLAN ON THE WHITE PROXY CARD
Lionsgate is a strong and diversified Company with a proven strategy to generate value for our shareholders. We are confident we can better serve our shareholders by continuing to execute our strategic plan.
Your Board strongly recommends that you reject the Icahn Group’s financially inadequate offer by not tendering your shares.
Your vote is extremely important. The Board recommends that you vote FOR Lionsgate’s Shareholder Rights Plan on the WHITE proxy card. We urge you to discard any gold proxy card you receive from the Icahn Group.
Since time is short, vote the WHITE proxy card by phone or internet.
We have appreciated and look forward to your continued support.
Sincerely,
/s/ Jon Feltheimer /s/ Michael Burns
Jon Feltheimer Michael Burns
Co−Chairman and Chief Executive Officer Vice Chairman