Lionsgate, the listed Toronto-based independent film and TV company, may be investor Carl Icahn's next media target. If so, there is considerable debate about what the endgame is for the well-known investor, who most recently called unsuccessfully for a break-up of Time Warner.

In a late March SEC filing, Icahn revealed that his investment vehicle had acquired approximately 4.1 million shares, or just under 4%, of Lionsgate, making him its seventh largest institutional investor. (Icahn's colleague, Mark Rachesky, his former senior investment officer, is the second biggest institutional investor, through his MHR Fund Management, with approximately 10% of Lionsgate.)

One media-savvy investor and financier thinks that forcing a sale of the Lionsgate film and TV library is Icahn's ultimate prize. That library currently contains approximately 6,500 films and 1,800 TV programs, according to Hoover's. But Lionsgate analysts polled by this service profess to be unsure of Icahn's intentions, and even puzzled by his Lionsgate move. Icahn himself declined comment, and a senior Lionsgate spokesperson cited a company policy of not discussing shareholders in declining comment about Icahn or his intentions.

However, Lionsgate senior management is fielding analysts' questions in a conference call on 15 June, and the issue of Icahn's investment is almost certain to be on the analysts' agendas. According to a person familiar with the situation, Icahn and Lionsgate management have spoken at least twice, since the investment, in conversations that were characterized as "amicable" and "introductory," rather than substantive.

Calling Icahn among the "savviest investors in the world," financier Richard Dorfman recently proposed on his Web site that Icahn "recognizes the value inherent in the Lions Gate library and plans to unlock that value by advocating for the sale of the company." According to Dorfman's analysis, Lionsgate could bring in USD 2bn or more in a sale, "which would translate into a stock price potentially in excess of USD 16 per share." At the beginning of the week of 12 June, Lionsgate was trading at around USD 9.3 per share.

Lionsgate stock is at "closer to fair value than a lot of other media plays," said William Kidd, media analyst at Ladenburg Thalman. "Whether it's Icahn or anybody else it's going to be very difficult to buy this company at any kind of discount." One "distinct possibility" is taking Lionsgate private and keeping it independent, he added, discounting earlier, pre-Icahn speculation that Lionsgate would be the target of a large media conglomerate. "From a dollars-and-cents standpoint the library is small," Kidd said. "From a title standpoint it's large.... I don't think it's that strategic, I think it's too small." The library contributes approximately USD 200m per year to Lionsgate revenues, Kidd estimated.

"I don't know what Icahn's intentions are," said Alan Gould, senior media analyst, Natexis Bleichroeder, but "I don't see him stripping the library."

Gold agreed that the least likely scenario had Icahn as a passive investor. "At the right price would Lionsgate be for sale? Sure. It's run by financially oriented guys." But the right price for them "wouldn't be anywhere close to where the stock is," he added. "Their goal is to build the company."

"Lionsgate is a much smaller, streamlined company," than Time Warner, noted Michael Kelman, media analyst, Susquehanna Financial Group. Icahn wanted to oust the leadership at Time Warner, but "I don't know what specifically [Icahn] can do to change the tune [at Lionsgate]. They do a good job of running an independent film production studio." However, like other analysts, Kelman agreed that Icahn wasn't known as a passive investor. "What the thought process or end game here is, I don't know." But "maybe Lionsgate isn't a near-term takeout play," he said. "In fact, they're still trying to roll up some of the industry.... Maybe they're more likely a buyer, than a seller."

That sentiment was seconded by Peter Wilkes, head of investor relations and corporate communications at Lionsgate. "Our focus in the marketplace is as buyers, not sellers," he said. Acquisitions Lionsgate continues to consider include Image Entertainment, a California-based company which rebuffed an earlier Lionsgate acquisition attempt. At this juncture, with an Image annual meeting set for October, Lionsgate has fielded its own slate of Image directors.

According to another industry insider who declined to be identified, this time Icahn may in fact be a passive investor, with no over-arching Lionsgate "strategy" at all, beyond simply holding on to the stock until it goes up, then selling. Perhaps ironically, Lionsgate currently is pursuing Image with the primary goal of acquiring Image's 2,800-title library.

by Louis Chunovic