Lionsgate/Icahn Reach 10-Day ‘Détente’9 Jul, 2010 By: Erik Gruenwedel
Lionsgate and activist shareholder Carl Icahn July 9 entered into an agreement whereby both parties will explore possible merger and acquisition opportunities.
The agreement, which ends July 19, calls for both parties to refrain from entering into, or authorizing the issuance of any securities, entering into contracts with third parties outside of normal business operations, among other provisions, according to a regulatory filing.
New York-based Icahn earlier this month ended his $7-per-share tender offer for outstanding shares of Lionsgate, leaving him at the time with 33.9% (now nearly 38%) ownership and a political stalemate with senior management of Santa Monica, Calif.-based Lionsgate.
With Icahn's sizable ownership stake, Lionsgate could't ignore the investor despite his adversarial stance and often hostile negotiating tactics. Conversely, Icahn didn't want the studio initiating self-serving ploys such as issuing common stock in an effort to dilute his holdings. Hence, the truce.
At the end of the 10-day period, the mini-major could extend the détente period, expand it into longer-term agreement with Icahn, or leave him free to launch another tender offer, according to a source familiar with the situation.
“This 10-day détente is a modest step in the right direction, but it is by no means a definitive final agreement,” said the source, denying media reports that a management shakeup at the mini-major was in the works as a result of the agreement.
“Reports about the management shakeup are wrong, if anything, this [agreement] would be a step in the opposite direction,” the source said.
Brian Shipman, analyst with Jeffries & Co. in New York, has said that without Icahn’s support the probability of continued hostilities between the investor and senior management would continue.
“Absent Icahn's tender offer we see more downside risk to the share price, and only marginal upside if his offer were to be raised,” Shipman wrote in a note earlier this month.
Indeed, Icahn has argued that without his tender offer, Lionsgate shares will eventually fall back below $5 per share when he began acquiring shares.
Analyst David Miller with Caris & Co. in Los Angeles has stated that a fair acquisition price for Lionsgate is about $9 per share.
Lionsgate shares closed up 8 cents at $6.84 per share.