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Icahn Issues (Self-Serving) Plea to Lionsgate Shareholders

28 Jun, 2010 By: Erik Gruenwedel

Carl Ichan

Activist shareholder Carl Icahn June 28 warned Lionsgate shareholders that the mini-major’s stock price will fall below his ongoing $7-per-share tender offer, which expires at market close June 30.

In a statement, Icahn said Lionsgate’s shares have artificially risen from $4.85 per share in February, largely due to his prolonged interest in the stock and the studio announcing June 25 it was joining the Russell 2000 Index. The Russell Index measures the performance of the small-capitalization segment of the U.S. equity market.

Icahn said 5 million shares of Lionsgsate were purchased June 25 by index funds that he said were forced to do so with the stock’s pending listing June 28.

Icahn, who owns 32% of the Santa Monica, Calif.-based studio, said Lionsgate’s after-tax earnings for fiscal 2010 was $24 million, which he said could be easily “obliterated” by a 25% drop in catalog revenue brought on by slumping DVD sellthrough.

The New York-based investor said he remains bullish on Lionsgate as a distributor — not producer —  of movies and TV programming. Indeed, Icahn characterized as “absurd” Lionsgate’s annual $180 million in sales, general and administration (SG&A) costs, and said it has to “clean up” its balance sheet.

He said Lionsgate should stop producing big budget movies and trying to acquire third-party studio libraries, such as its reported interest in the MGM catalog.

“Tying two one-legged men together does not mean they will run faster, in fact it will slow them down,” Icahn said in the statement.

Lionsgate has called Icahn’s tender offer “financially inadequate” and “coercive.” Analyst David Miller with Caris & Co. in Los Angeles has stated that a fair price for Lionsgate is around $9 per share. Regardless, Michael Burns, vice chairman of Lionsgate, reportedly met with Icahn over the weekend, according to a published report.

Lionsgate’s shares were down 26 cents to $7.01 per share in midday trading.

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