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Without Icahn, Lionsgate (LGF) Is a Risky Business

August 31, 2011 | About:
matsandalex

matsandalex

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Carl Icahn ended his bid for Lionsgate Entertainment (LGF) yesterday. Icahn agreed to sell his shares for $7 which is roughly what he paid for them two years ago.

Icahn was diplomatic upon his exit and wished the company well in a statement. “As some have noted, my own ‘slate’ is pretty full at the time, and I therefore determined that it is a good time to exit,” he said.

Of course as part of the settlement, Icahn agreed not to disparage the company in public.

Icahn most likely wanted to take over the company in order to cut expenses and risky bets on productions that flopped.

For example, Lionsgate is a top-heavy company with four senior executives that make CEO-level salaries. Despite being a tiny studio, Jon Feltheimer, Michael Burns, and co-chief operating officers Steven Beeks and Joseph Drake make between $1.7 million and $4.1 million. Other C-level executives make over $500,000.

Icahn slammed the managers of the company in a letter to shareholders in 2010.

"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."

Icahn also questioned the risky bets that resulted in wasted shareholder money. Without Icahn and his "adult supervision" it remains to be seen whether Lionsgate can ever achieve regular profitability. Icahn has warned that the company culture was set up for failure when he said:

"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."

Rating: 3.1/5 (10 votes)

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