Carl Icahn has raised the stakes in his Lions Gate takeover attempt, boosting his tender offer from $6 to $7 in cash — a 17 percent jump that values the company to $826 million.
Lions Gate acknowledged the new offer in a tersely worded statement, indicating that it was reviewing the bid and would make a recommendation shortly.
The company has been exchanging harsh words with the corporate raider ever since his $6 bid that the company board — on which Icahn has been seeking a seat — complained was too low.
In an open letter to shareholders, Icahn dismissed the notion that his tender offer was "coercive," and also disagreed that $6 was inadequate, arguing that the company’s stock price has been inflated by the offer itself.
"We decided to raise our offer price not because we believed $6.00 per share to be inadequate," Icahn said, "but rather because we felt it necessary to make every effort to protect the investment we currently have in Lions Gate."
The new offer buoyed Lions Gate shares nearly 9 percent, to $6.94, in after-hours trading.
Icahn currently owns about 18 percent of the entertainment conglomerate.
Below are some highlights from Icahn’s letter:
Dear Fellow Shareholders:
Today I announced that the purchase price in the tender offer by my affiliated entities for up to all of the outstanding common shares of Lions Gate Entertainment Corp. is being increased to $7.00 per share in cash. … I am writing to you now to address the many criticisms and claims that the Lions Gate public relations machine has disseminated (at shareholders’ expense) with respect to our offer and to express my dissatisfaction with the failure by the Board of Directors to hold management accountable to the shareholders.
When we first announced our tender offer to purchase up to 13,164,420 shares of Lions Gate, the Board claimed it was “coercive” because it was a partial bid. We disagreed then, and continue to disagree, with that assertion. Nevertheless, in an attempt to take this issue off the table, we amended our offer to provide that we would purchase up to all of the outstanding shares of Lions Gate. The Board’s response to our amended offer was that it was still “coercive.” It appears to me that any offer which threatens the status quo at Lions Gate will be labeled as “coercive.”
Another fault the Board found with our offer was the original purchase price of $6.00 per share in cash, which the Board told shareholders was “inadequate from a financial point of view.” However, Lions Gate’s own banker disagreed with that assessment! In a research report dated March 31, 2010, J.P. Morgan said: “We think the Icahn offer implies a premium valuation for Lions Gate’s film and TV business.” … Nevertheless, we have decided to take this issue off the table by raising our offer price to $7.00 per share in cash, which is $2.15 higher than the $4.85 closing price of the common shares on February 4, 2010 (the last trading day prior to the first date in 2010 that we resumed purchasing Lions Gate common shares), representing a premium of more than 44%.
We decided to raise our offer price not because we believed $6.00 per share to be inadequate but rather because we felt it necessary to make every effort to protect the investment we currently have in Lions Gate. We do not feel comfortable that existing management is the right team to guide Lions Gate through this difficult period
I think profligate spending has taken its toll on Lions Gate’s share price – and I am clearly not the only one. In a recent Los Angeles Times piece, Patrick Goldstein stated:
Icahn also says that Lions Gate’s overhead is too high. And you can’t help but wonder if he doesn’t have a point, starting right at the top. After all, after Feltheimer and Burns brought in Drake to run the film division, they literally kicked themselves upstairs to sumptuous, glass-enclosed new digs on the top floor of Lions Gate’s Santa Monica headquarters.
The Board continues to attempt to frighten shareholders by stating that our offer would constitute an event of default under certain “change in control” provisions – commonly known as “poison puts” – in Lions Gate’s debt documents, which could result in the acceleration of over $500 million of indebtedness. How the Board can blame us for this problem – which they created – is beyond me. As far as I am aware, nobody held a gun to the directors’ heads and forced them to agree to these poison puts.