This is the latest effort in Lionsgate’s campaign to take advantage of today’s low interest rates and reduce its annual interest costs. It should save more than $20M a year as a result of two transactions worth $450M made on Friday, and disclosed in SEC filings this morning. The new funds, plus cash on hand, enabled Lionsgate to pay off debt that carried a super-high rate of 10.25%. Lionsgate sold $225M of senior secured second priority debt that pays 5.25% and is due in 2018. The other deal, also for $225M, is a term loan described as Second Lien Credit and Guarantee Agreement. Lionsgate expects to save $10M+ a year following its earlier agreement to pay off its $500M Summit term loan more than two years early.
The stock is up 3.5% on the surprising announcement. Helped by the strong performance of films including The Hunger Games and The Twilight Saga – and especially the $800M revolving credit facility it negotiated last month – the independent studio says that it paid off “all amounts outstanding” from the $500M it borrowed to buy Summit. Lionsgate paid off the remaining balance of $299.2M with cash from the credit facility. That effectively lowered the interest burden to 3% from 7%, saving about $12M in interest expense per year. Lionsgate also made Summit a guarantor of its senior credit facility and 10.25% Senior Secured Second-Priority Notes due 2016.
Lionsgate shares are down about 3.4% in after-hours trading after it surprised investors by reporting a net loss for the quarter that ended in June. The independent studio lost $44.2M, down from a $10.3M profit last year, on revenues of $471.8M, +80.6%. Revenues exceeded the Street’s forecast of $447.3M. But the loss of 33 cents a share contrasts with the consensus forecast for a 9 cent profit. The company says that the operations are doing just fine with strong returns from The Hunger Games, Cabin In The Woods, and What To Expect When You’re Expecting as well as — surprise! — “strong revenue gains from the Company’s home entertainment business.” Motion picture revenue was up 111% to $406.5M. That includes theatrical sales of $137.6M, up fivefold, and TV revenue of $37.1M, -14%. Home video sales also were up fivefold to $137.6M. Meanwhile, TV production revenue was -5% to $65.3M as home video sales from the 6th and 7th seasons of Weeds and the 5th season of Mad Men didn’t outweigh the drop in the number of syndicated shows. But Lionsgate spent $90M more on marketing this year as it promoted five film releases vs just one in the same quarter last year. All of the films “are anticipated to be profitable on an ultimate basis,” the company says. The earnings statement also says that costs for stock-based compensation soared due to the increase of Lionsgate’s trading …
The financial types at Lionsgate are working overtime to take advantage of today’s super low interest rates — and prepare for the 2013 expiration of a major five-year credit facility. The company is just beginning to chat with banks about a new credit line of as much as $750M to replace the current $340M facility which expires next July. The funds would be used for general corporate purposes. It hasn’t chosen a lead banker yet although JP Morgan, Wells Fargo, and Bank of America are strong candidates. The talks are taking place as Lionsgate — enjoying its windfall from The Hunger Games –seizes opportunities to pay down its existing, and often high-priced, debt. The company noted in an investor presentation last week that in six months it has reduced its $500M term loan from the Summit Entertainment acquisition to $299M. It’s getting rid of $23.5M in 3.625% convertible notes by exchanging the debt for equity. The first tranche took place on Monday, and the second will be this coming Monday. Also, with interest rates at record lows, the company likely will refinance $436M in high yield debt, at about 10%, to a more reasonable rate of around 3%.
The production company’s shares dove more than 8% in initial after-hours trading — but recovered to a more modest loss later — after it released what appears to be a dreary report. Lionsgate had a net loss of $1.7M in the last three months of the year vs a $6M loss at the end of 2010, on revenues of $343M, down 23.6%. Analysts expected revenues to be much higher, at $358.8M. The company’s net loss, at 1 cent a share, also contrasts with the 9 cent profit that the Street anticipated. Lionsgate says that revenues suffered from the lack of a wide theatrical release in the quarter; last year it had three. As a result, motion picture revenues fell 28.6% to $233.3M. TV production was down by 6.8% to $89.7M. Home entertainment also struggled with revenues from movie releases of $128.9M (-28.8%) — slightly offset by $34M for TV shows (+108.6%). Lionsgate said it made $7.3M from its 31,2% stake in EPIX, an improvement from the $11.1M loss on the investment in the same quarter in 2010. But that was somewhat offset by the $2.1M loss on its 51% of TV Guide Network a slight increase from the $2M loss last year.
The film and TV company had a net loss of $24.6M, an improvement from its $29.7M loss in the quarter last year, on revenues of $358.1M, down 21.5%. That revenue figure was far below the $421.5M that analysts expected. And the net loss, at 18 cents a share, was below the 13 cent loss the Street had forecast. The bottom line could have looked even worse: Lionsgate included the $11.0M it collected from its sale of Maple Pictures. The company also was able to add $6.1M from its 31.2% stake in EPIX vs a $19.8M loss from last year’s quarter. Lionsgate says that it suffered from “underperformance of theatrical films in the quarter” — where releases included the Conan The Barbarian remake, Warrior, and Abduction – as well as “timing of DVD releases which offset gains in the Company’s television and digital businesses.” The movie operation generated $218.9M in revenues, down 36%.
Lionsgate CEO Jon Feltheimer’s $7.9M Compensation Package For FY 2011 Up 116.8% Thanks To Carl Icahn
Billionaire Carl Icahn did a big favor for Lionsgate execs when he accumulated more than 33% of the stock in June 2010. That triggered change-in-control clauses in executives’ contracts, accelerating their stock payments for the fiscal year that ended this past March. An SEC filing out today shows that Feltheimer received $1.2M in salary and a $1.9M bonus — but nearly $4.8M in stock, up from $412,800 the previous year. The company also paid for personal expenses including $23,882 for club membership dues. Feltheimer’s bonus was down $50,000 in a year when Lionsgate shares increased less than 1%. The filing says that there are ”no specific financial performance targets or other objective performance criteria” for executives’ bonus awards; they’re based on ”a subjective determination” about how well they did. But Feltheimer was by far the highest-paid exec at Lionsgate: He made 250% more than the runner up, General Counsel Wayne Levin, with $3.2M. Feltheimer accounted for 46% of the total amount that went to the company’s top five execs who also included Vice Chairman Michael Burns ($2.7M), Co-COO Joseph Drake ($2M), and CFO James Keegan ($1.5M).
Lionsgate Entertainment soundly beat analysts’ profit estimates for the quarter that ended in March, helped by income from The Lincoln Lawyer, VOD showings of its movies and revenue from its interest in EPIX. The company reported net income of $46.1 million for its fiscal fourth quarter, up from a $22.3 million loss in the same period last year, on revenues of $376.9 million, down 6%. Profits, at 34 cents a share, contrast with the 18 cents average forecast by analysts who follow the company. “Our numbers going forward should reflect growing momentum in our film business from franchises like The Hunger Games, The Expendables and What To Expect When You’re Expecting that we expect will have the capacity to generate more consistent year-to-year motion picture performance,” CEO Jon Feltheimer said. The company will discuss its financial performance with analysts tomorrow.
Canada’s already cozy film market may soon become a little cozier. We hear that the country’s No. 1 independent film distributor, Alliance Films, is angling to acquire one of its largest competitors, Maple Pictures — and is deep into talks with Lionsgate to buy its 10% stake in Maple. Lionsgate is looking to pay down debt following a year during which it fended of a hostile takeover attempt by corporate raider/shareholder activist Carl Icahn to give the company to his son Brett. Lionsgate stock right now is still stuck in neutral. The Maple stake is considered peripheral. Maple grew out of Lionsgate in 2005 – it was known as Lionsgate Films before the company spun off the unit. It’s run by two former Lionsgate executives, Laurie May and Brad Pelman, and continues to distribute Lionsgate films, DVDs, and TV shows in Canada.
UPDATE 1:30 PM: Carl Icahn released the following reaction to Lionsgate shareholders today re-electing current Lionsgate management’s board of directors and not his own proposed 5 directors. from the sound of it, Icahn has zero intention of giving up:
We are disappointed that shareholder democracy has failed – or rather was subverted – in the case of Lions Gate’s annual meeting of shareholders as a result of the voting of over 16 million shares that were issued to director Mark Rachesky at a bargain price in a transaction approved by Lions Gate’s board of directors “at a midnight meeting” in July in an effort to entrench themselves. It is clear to us from our analysis of the preliminary voting results that had this dilutive transaction been rescinded, as we had requested of courts in New York and Canada, our slate of nominees would have been elected.
This whole situation is a very sad commentary on the state of corporate governance today. The biggest losers are the shareholders of Lions Gate who were deprived, as a result of the machinations of Lions Gate’s board and senior management, of the opportunity to receive a large premium for their shares in our tender offer. Unfortunately, shareholders might be in for even more pain. The shares have already lost more than 8% of their value since December 8, 2010, the day before the New York Supreme Court denied our motion for a preliminary injunction regarding the dilutive
The Carl Icahn vs Lionsgate proxy war heated up overnight. That’s because two major proxy advisory firms counseled shareholders to support the entire or majority of Icahn’s dissident slate of directors for the embattled TV/film studio. A Lionsgate insider acknowledged to me that the recommendations were a “mixed bag” for the company. But Icahn trumpeted the news in advance of the December 14th shareholders meeting in Los Angeles.
The proxy advisory firm Egan-Jones, which provides independent voting recommendations, stated: “We feel that is imperative that the Dissidents be heavily represented on the Board … and that voting the dissidents’ ballot is in the best interest of the Company and its shareholders.” Icahn, naturally, was pleased. “The actions of Lionsgate’s Board speak for themselves as does the company’s and its stock’s performance,” he said in a statement.
Another major shareholder advisory firm Institutional Shareholder Services recommended to shareholders they approve 3 of Icahn’s five nominated board members: film executive Jay Firestone, lawyer Daniel A. Ninivaggi, and former Bertelsmann entertainment executive Michael Dornemann. However, ISS nixed ex-Overture boss Chris McGurk and former Princeton president Harold Shapiro.
Icahn himself issued a statement saying he was pleased by the recommendations, noting: “$100 invested in Lions Gate stock five years ago would be worth $56 today. If you had put that same $100 into an NYSE composite index, it would have been worth $117. If you had put it in my hedge fund, it would be worth $145. If you put it under your mattress, you at least would …
The company reported a 2nd quarter net loss of $29.7 million compared to net income of $31.7 million same quarter last year. But Lionsgate did report revenue of $456.3 million, an increase of 25% over last year. The revenue rise was boosted mainly by increases in theatrical box office — Lionsgate released The Expendables, The Last Exorcism and Alpha & Omega this past quarter – as well as international and television production. The loss was due to a rise in marketing costs but also could be partially blamed on fighting its biggest shareholder, Carl Icahn, as charges associated with a July 20 debt-to-equity conversion as well as hefty legal bills contributed to the drop. Lionsgate and Icahn, who have been waging a campaign to take control of the company, are prepping to go face-to-face at the annual shareholders meeting set for December 14.
Carl Icahn has made another offer to MGM lenders in hopes of thwarting the prepackaged bankruptcy plan and Spyglass deal. He’s now offered to buy $1.6 billion in debt at a premium price of 53 cents on the dollar; last week, he offered to buy $963 million in debt. The offer expires Friday — the voting deadline for the bankruptcy/Spyglass plan that would put Gary Barber and Roger Birnbaum in charge. On Monday, Lionsgate sent a letter to MGM proposing that a Lionsgate-MGM merger, which Icahn now supports, could save about $100 million annually and increase revenues. If Icahn indeed manages to buy up the $1.6 billion, the total amount he would own would give him a majority of the debt. The Spyglass plan would give lenders 95% ownership of the company; a Lionsgate merger would give creditors a 55% equity stake.
In a letter sent to MGM on Monday, Lionsgate said its proposed merger with the studio would amount to $100 million in annual savings while boosting cash flow by $120 million over five years. Documents were also filed with the SEC. Among the details of the proposed merger: The new company would lead to a reduction in staff of about 175 people, or 17% of the combined workforce of the two companies. And a merger between MGM and Lionsgate would lead to the production of 16 movies per year. MGM’s board faces a Friday deadline to vote on a proposed prepackaged bankruptcy plan in which Spyglass Entertainment’s Gary Barber and Roger Birnbaum would be put in charge. Under that scenario, creditors would own 95% of the studio’s equity. The Lionsgate proposal gives MGM creditors 55% of the equity. Last week, Carl Icahn, who supports the Lionsgate plan, offered to buy another $963 million of MGM’s debt.
Lionsgate has recommended to shareholders that they spurn Carl Icahn’s latest offer to pay $7.50 for outstanding shares. The company just filed its Schedule 14D-9 Report. The report described a September 7 meeting of the board of directors, which unanimously rejected the offer and voted to recommend that shareholders do the same. The reasons included strings that Icahn attached to the offer, but also that Lionsgate management feels confident about recent momentum it has built with recent releases The Expendables and The Last Exorcism, both of which performed well in late August. The company also cited the surprising resilience of the film Kick-Ass, which has grossed $50 million domestic and $100 million worldwide and which just topped the DVD sales charts. Lionsgate also cited a record 26 Emmy nominations, including wins for Mad Men and Nurse Jackie, as reasons to feel bullish on the TV side. Not in the report was the week long meetings held by Lionsgate brass with directors for The Hunger Games, the first in a series of three Suzanne Collins novels that have the potential to be a game-changer for the indie, much the way that Twilight was for Summit Entertainment.
Icahn recently raised his share offer to its highest, after a starting bid of $6.50, which climbed to $7. The stock closed slightly down, at $7.14 per share.
Every Icahn move has deep reverberations inside the film/television studio whose management is increasingly paranoid about how their actions will be viewed by him. What a destabilizing situation. Now Carl Icahn’s hostile takeover attempt intensifies with his $7.50 a share unsolicited tender offer this morning. It expires October 22nd. Icahn said his new offer will only be valid if the extra shares that the company recently issued to Lionsgate director Mark Rachesky (who used to be Icahn’s investment adviser) are rescinded or converted into nonvoting stock. The film/TV mini-major, in a defensive move against Icahn, did a debt-for-equity swap in July to dilute his stake in the company. It issued 16.2 million new common shares to Rachesky, boosting his stake to 28.9%, while diluting Icahn’s stake to 33.5% from 37.9%.
Icahn has asked the Supreme Court of British Columbia to reverse the swap. Lionsgate told me just now that its annual shareholders meeting, usually scheduled for sometime in September, has been postponed until after October 12th. “The British Columbia Supreme Court, which is hearing Icahn’s litigation, asked us to delay the record date for the Annual Shareholders Meeting until after their October 12 hearing,” a source told me.
Here is Lionsgate’s response to Icahn’s new tender offer:
SANTA MONICA, Calif. and VANCOUVER, August 31, 2010 — Lionsgate today announced that it has received a revised unsolicited tender offer from Carl Icahn and certain of his affiliated entities (the “Icahn Group”) to acquire up to all of Lionsgate’s
Lionsgate Reports Net Q1 Loss Of $64M; Blames Underperformance Of ‘The Killers’; Spent $30.6 Million Fighting Off Carl Icahn
Earnings season has produced better-than-expected results at the major studios and networks with only Disney left to report tomorrow. (Watch for Deadline’s full summary.) But Lionsgate just reported bad news when Carl Icahn is breathing down its neck for that hostile takeover attempt. The mini-major today reported revenue of $326.6 million and adjusted EBITDA of negative $13.7 million for the first quarter of fiscal year 2011 compared to positive $53.4 million for the prior year first quarter. Net loss was $64.1 million in the quarter compared to net income of $36.3 million in the prior year’s first quarter.
The loss was attributable primarily to an increase of $71.2 million in theatrical marketing costs as the Company distributed three wide releases in the quarter compared to one wide release in the prior year’s first quarter. Revenue declined 14% compared to the prior year’s first quarter due primarily to the deconsolidation of TV Guide Network revenue, the timing of television deliveries, the decline in Mandate Pictures revenue compared to a record quarter last year, as well as a decline in home entertainment revenue attributable to the smaller theatrical slate in fiscal 2010. Basic net loss per common share for the quarter was $0.54 compared to basic net income of $0.31 in the prior year’s first quarter.
“Our first quarter was affected by marketing costs for our three wide releases, timing of television deliveries and the underperformance of our theatrical release KILLERS,” said Lionsgate Co-Chairman and Chief Executive …