Lions Gate stock pummeled by expiration of Icahn’s bid, merger talks with MGM

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Lions Gate Entertainment stock has been taking a beating this month after the expiration of Carl Icahn’s $7-per-share hostile tender offer and because of the uncertain state of the studio’s merger talks with Metro-Goldwyn-Mayer. Shares closed at $7.15 on July 1, the day after the activist investor’s bid expired and he said he would not extend his offer or launch a new one. Since then, the stock’s value tumbled 15%, closing at $6.03 on Monday.

On July 9, Icahn and Lions Gate, who have been feuding for more than year over control of the Santa Monica-based movie and TV studio, signed a 10-day truce during which they said they would discuss merger-and-acquisition opportunities for the company. On July 13, Lions Gate management made a merger presentation to a steering committee of MGM debt holders.

Both events were followed by sharp drops in Lions Gate’s stock value the next day.

“The stock was impacted when it became clear that Icahn won’t be buying more shares or doing anything else to enhance his equity stake,” said Jeffrey Logsdon, an analyst at BMO Capital. “MGM has also been a mystery quotient. There’s no information as to how it would be done....Markets typically don’t like that level of uncertainty.”

In addition, investors may not be warm to the idea of an MGM merger given the falling value of film libraries amid a decline in DVD sales.

‘There’s a weariness because the library business is in decline, so doubling down [on one] may not be wise,’ said David Bank, an analyst at RBC Capital.

Now Wall Street is waiting to learn whether Lions Gate and Icahn, its largest shareholder at 38%, will extend their detente (which expires Monday night) and continue exploring strategic transactions for the company. If their truce ends, then Lions Gate would probably not be able to pursue a deal with MGM or any other potential merger or acquisition target because Icahn’s stake gives him veto power over such decisions.

In addition, under the terms of their 10-day agreement, Lions Gate would have to disclose all non-public information that it had shared with Icahn so that the investor could go forward with his long promised proxy war to take control of the board of directors. That would also enable Icahn to launch another tender offer, which he has publicly said he would not do.

Lions Gate stock began to rise in February, the month that Icahn first said he would launch a tender offer for the company’s stock at $6 per share, which he later increased to $7. Since then it has gone from a low of $4.85 to a high of $7.27 in late June, a few days before his offer expired.

The studio’s proposal to merge with MGM, which was done with Icahn’s involvement, is one of several scenarios under consideration by the debtors who are determining MGM’s future. Also on the table is a bid by Spyglass Entertainment for its chief executives to take over management, and another for MGM to merge with ‘Twilight’ studio Summit Entertainment.

-- Ben Fritz and Claudia Eller

Stock chart credit: Yahoo! Finance.