Ottawa OKs Icahn takeover of Lions Gate
Chip East/Bloomberg News
Activist investor Carl Icahn has received approval from Canadian regulators for his hostile takeover of Lions Gate Entertainment Inc., striking another blow to the independent studio's bid to prevent him from gaining majority control.
Janet Whitman, Financial Post · Wednesday, Jun. 9, 2010
NEW YORK -- Ottawa on Wednesday gave a green light to the proposed hostile takeover of Vancouver-based Lions Gate Entertainment Corp. by U.S. corporate raider Carl Icahn — an endorsement that would essentially ensure a future for such homespun Canadian classics as “Saw IV” and “The Killers.”
While Lions Gate moved the bulk of its business to the United States years ago, Canada’s cultural regulators weighed in on the deal to protect the work the Hollywood movie studio still does north of the border, including the shooting of American comedy series “Blue Mountain State” in Montreal.
To win approval from the Minister of Canadian Heritage under the Investment Canada Act, Mr. Icahn pledged to keep Lions Gate incorporated in Canada and to maintain or possibly increase the level of film production in the country.
Some industry observers said it’s absurd that regulators are treating Lions Gate – which is incorporated in Canada, but run out of Santa Monica, Calif. – like a treasured national cultural asset.
“Even if they decided the takeover was not a net benefit to Canada, it’s not something the Ministry ought to be weighing in on,” said James Milway, executive director of the Institute for Competitiveness and Prosperity, a Toronto-based research group funded by Ontario’s provincial government. “If someone was talking about taking over on CBC or something like that, then let them talk about what they think on the issue.”
Mr. Milway, who bought some shares in Lions Gate a couple of years ago, said that a takeover of Lions Gate by someone outside of Canada would pose no threat to the country’s heritage or culture.
Instead, Canada’s interest in the proposed takeover reflects the country’s desire to protect its film industry, which offers heavy subsidies and tax incentives to woo business.
“It’s a very attractive location to make films,” said Richard Dorfman, managing director at Richard Alan Inc, an investment firm in media and entertainment that holds a stake in Lions Gate. “Canada’s got a lot of tax and other advantages that we do not offer in the United States.
It’s unclear whether Mr. Ichan’s strategy for Lions Gate would be any different than that of current management, which also has pledged to keep the company incorporated in Canada.
Walid Hejazi, associate professor at the University of Toronto’s Rotman School of Management who specializes in foreign investment in Canada, said the strong loonie could make promises to maintain or increase business difficult.
“It might be a challenge in a new era of a strong dollar,” he said. “We’re going from a period when the dollar was in the low 90s or high 80s to parity and perhaps higher.”
Now that he’s got an endorsement from the Canadian government, Mr. Icahn faces a much bigger hurdle: convincing Lions Gate shareholders to accept his offer.
Investors and analysts said the US$7 a share he’s offering isn’t enough.
“We’ve come up with a figure of US$10 a share,” said Alan Gould, an analyst with Soleil Gould Research. “Frankly, I’m not sure some of the large shareholders who have been there for a long time would be willing to sell at US$10.”
Other observers said Mr. Icahn, known for picking up companies at a bargain and selling them at tidy profits, isn’t interested in acquiring Lions Gate.
Instead, they said, he might be looking to encourage a strategic buyer, such as a large movie studio, to enter the fray.
“I think the company will be sold to a company other than Icahn in the next 12 months at a price in the mid-$8 to $9 range,” said Mr. Dorfman of Richard Alan.
The market doesn’t seem to be buying that idea yet. The company’s shares ended regular trading on Wednesday at US$7.04, only pennies above Mr. Icahn’s offer, suggesting investors aren’t convinced a sweeter bid is coming.
jwhitman@nationalpost.com
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