On the heels of a rejection of his takeover offer, Lionsgate and activist shareholder Carl Icahn have entered into a public and very personal sparring match over the management of the company — and who is failing at what.
On Wednesday, Icahn sharply criticized Lionsgate CEO Jon Feltheimer for presiding over a steep fall in stock price since 2004, and challenging his abilities: "I cannot help but wonder why your "vision" — if so ‘meaningful’ — never translated into shareholder value," he wrote.
He added: "If the stock price of a company remains stagnant for years, as it has with Lions Gate, then clearly something is wrong. I suggest that your directors have failed shareholders. They have never taken a long, hard look at this ‘meaningful vision’ you claim to possess and have not been willing to hold you accountable for it."
Lionsgate, which earlier this week rejected Icahn’s bid to take over the company for a lowball offer of $6 a share, was quick to respond, issuing a statement that thumbed its nose at the once-upon-a-takover king.
"Mr. Icahn is simply attempting to distract shareholders from the obvious — his offer price is woefully inadequate," the letter scolded. "Contrary to Mr. Icahn’s statement, Lionsgate’s Board and management team are focused on leading the Company and are committed to building value for all of our shareholders."
Here is Icahn’s full letter, followed by Lionsgate full statement:
I found several aspects of your statement yesterday of great concern. To say that you have exhibited a "patient, disciplined strategy of building a strong and diversified company step by step over the past 10 years" is absurd. In actuality, most of the stock’s appreciation during the decade was the result of one transaction the acquisition of Artisan. In the press release announcing that acquisition, Artisan CEO Amir Malin stated, "We enter 2004 with our strongest theatrical slate ever." After the acquisition, Lions Gate’s stock reached a high of $11.40 on November 10, 2004. But when the pipeline acquired from Artisan ran out, for several years the stock went nowhere, and then in September of 2008 it began its precipitous decline to a low of $4.85 on February 4, 2010. I believe the stock would have continued declining if I had not acquired 1,236,938 shares between February 5, 2010 and February 11, 2010 and then announced a tender offer on February 16, 2010. You claim that I offer no "meaningful vision", thereby implying that you have one. I cannot help but wonder why your "vision" – if so "meaningful" – never translated into shareholder value?
I believe that one of my strongest traits as an investor is that I don’t personally claim to be a visionary in regard to any particular industry. I believe in finding strong managers and holding them accountable. If the stock price of a company remains stagnant for years, as it has with Lions Gate, then clearly something is wrong. I suggest that your directors have failed shareholders. They have never taken a long hard look at this "meaningful vision" you claim to possess and have not been willing to hold you accountable for it. Instead, they have rewarded you and the rest of management with bonuses, options and golden parachutes while your shareholders have watched their stock decline.
Unfortunately, as is often the case, hand-picked boards let self-proclaimed "visionary" CEOs chase their vision indefinitely, even when years pass and their vision is clearly a delusion. To make matters worse, I continue to fear (as I have previously expressed) that the current board will allow you to borrow billions to pursue your new "vision" of library consolidation, exhibited by your interest in acquiring MGM and Miramax. This is simply another delusion in my opinion, as library values are currently in a secular decline, never to return to cash flows seen during the heyday of DVD sales.
I believe that you are, as you should be, frustrated by the five-year stagnation of Lions Gate. But more importantly, I am fearful that you have determined to "swing for the fences" using excessive debt and risking the shareholders’ equity. The road to bankruptcy is littered with companies whose CEOs under the banner of "vision" have been permitted by lax board oversight to gamble their companies into oblivion.
Carl C. Icahn
Here’s the rest of the Lionsgate statement, vaunting Lionsgate’s accomplishments over the past decade – including the acquistion of TVGuide, which Icahn sharply criticized. But Icahn is most worried, of course, about high overhead and the apparent hunger to acquire MGM:
"Our track record of successful growth over the past 10 years is evidence that we continue to move Lionsgate in the right direction:
· Motion Pictures: Lionsgate has created one of the only motion picture businesses with a significant presence in the horror/action genres, independent and prestige segments of the market.
· Our theatrical business typically acquires, produces and releases approximately 12 to 15 films a year under a disciplined financial model. In addition, Lionsgate has been successful in releasing highly regarded hits such as the Oscar winning films Crash and Precious and in creating long-term, valuable franchises such as the “Tyler Perry” and “Saw” franchises. Our upcoming slate highlighted by the films Kick Ass, starring Nicolas Cage, Aaron Johnson, Christopher Mintz-Plasse, Chloe Grace Moretz and Mark Strong; The Expendables, starring Sylvester Stallone, Killers, starring Katherine Heigl and Ashton Kutcher; Tyler Perry’s Why Did I Get Married Too, starring Janet Jackson, Jill Scott and Tyler Perry; and The Next Three Days, starring Russell Crowe, typifies our diversified portfolio approach focusing on large niches where we have a track record of proven success.
· We have achieved profitability on approximately 70% of our film releases over the past ten years — one of the highest success rates in the industry.
·Television: Our television business has grown from annual revenues of $8 million in 1999 to approximately $350 million this year. We have been focused on financial discipline in developing new television product. Our hit shows Mad Men, Weeds and Nurse Jackie are leading shows in the television business and have achieved critical acclaim, a devoted fan base and economic success.
·12,000-Title Library: Through a series of successful acquisitions and additions from recent television and theatrical productions, Lionsgate has built a premier, 12,000-title library that has generated an average of $267 million in annual revenue for the past three years.
Throughout the past year, Mr. Icahn has repeatedly changed his stance on Lionsgate and his intentions with regard to the Company:
In May and June 2009, Mr. Icahn had several discussions with management regarding Lionsgate’s interest in a potential acquisition of Metro−Goldwyn−Mayer Inc., (MGM) including his potential participation in providing financing for the transaction. Now he is openly criticizing Lionsgate for its interest in acquiring libraries.
Last year Mr. Icahn was openly critical of the acquisition of TV Guide Network and TVGuide.com, going as far as saying that the transaction “borders on recklessness.Since then, however, Mr. Icahn praised Lionsgate’s management for many of its decisions, including the acquisition of TV Guide Network and TVGuide.com. Notably, Lionsgate believes that TV Guide Network and TVGuide.com are worth more than what Lionsgate paid for it a year ago and expects them to generate $75 million in EBITDA within three years.
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 business plan."