Harold Vogel is the president of Vogel Capital Management and the author of “Entertainment Industry Economics: A Guide for Financial Analysis.”
What do you make of Carl Icahn’s offer to purchase Lionsgate debt?
It’s a step in exerting more forceful control over the destiny of the company. A takeover? not yet. But it’s a step in that direction.
How does it give him control?
It gives him a higher percentage of control, but it’s indirect. You can convert the debt into equity eventually. But it’s not converted now, so directly it does not give him control.
Why would other investors like Gordon Crawford go along with Icahn’s plans?
If someone makes a tender offer for shares, he will go along with the tender offer. He can reject the bid, say it’s not high enough. But in this market, he’d go with it.
Why buy debt and not equity?
Buying debt has other advantages. He’d be first in line to get paid if the stock goes down. Equity gets wiped out. The bonds may go up in value. And he may be constrained legally in buying equity, because it’s a Canadian company. And while he’s waiting around for this to play out, it might be a cheaper way to buy stock, meantime he’s earning money and getting return on debt. It’s all a way of rattling management’s cage.
How should Lionsgate react?
t’s very unsettling, and they don’t have many viable options. They could run to one of major studios — Time Warner or Viacom.
Icahn’s problem is he put his foot into this thing at a high price. He started buying at $10-$12. He’s already underwater on what he bought.
Does Carl Icahn know how to run a movie studio?
What did he know about running TWA? What did he know about pharmaceuticals? Or Motorola? A disaster, too. He’s been in all these fights. He used to be a golden touch. But the golden touch rattling the cages, stirring up the board, was all a function of the bull market.
All these creatures are creatures of the bull market. Now that the market has gone through this inflection point, it’s not as easy.
Companies like Lionsgate have their hot streaks, cold streaks, but they’re largely dependent on DVDs, which are mature. Doesn’t make for a huge growth story. The big problem I have with big movie investors is it’s not scaleable.
It’s always a big mistake on the part of investors who think Hollywood is a gold mine. But Carl Icahn, I think, is living in the past glories. The environment really has changed since 2007.
