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Lions Gate may spin off or reorganize digital and distribution assets

February 28, 2011 |  1:27 pm

With its stock plummeting 25% since activist investor Carl Icahn lost his takeover battle for the film and television studio in December, Lions Gate Entertainment may spin off or create a new division for its digital and television distribution assets in an attempt to boost its share price.

Lions Gate owns half of TV Guide Channel and its website, 42% of the young male video website Break, and one-third of the fledgling pay cable network Epix -- which last year signed a $1-billion distribution deal with Netflix -- and one-third of horror cable channel FearNet.

A report in the New York Post on Monday said Lions Gate is considering spinning off those assets into a separate company so that investors would value them independent of its other businesses.

Another possibility for Lions Gate would be to report revenue and earnings for the channels and companies separately from its film and TV production and home entertainment library. Larger media companies such as Time Warner and Walt Disney Co. break out groups of assets into separate units when reporting their financial results.

Executives at Lions Gate have attempted to convince investors that those assets are being undervalued. In a Feb. 10 conference call with Wall Street analysts, Chief Executive Jon Feltheimer for the first time singled out the financial performance of TV Guide, Epix, Break and FearNet.

"Our channels, our TV business and our online properties are all areas that are proceeding on plan, generating or poised to generate significant, positive EBITDA and free cash flow, strengthening our brand and building our asset value moving forward," he said.

On the same call, Vice Chairman Michael Burns said the company might seek to sell some of its "non-core assets." Outside of its TV and digital distribution businesses, that category could also include the Canadian and British theatrical distributors it owns.

Lions Gate's stock price rose 2.7% on Monday afternoon to $6.12. Before Icahn admitted defeat in his attempt to seize control of the company and win several seats on its board in December, the shares were as high as $7.44.

-- Ben Fritz