Lions Gate Entertainment Corp., under pressure from activist shareholder Carl Icahn to slash costs, has sold a 49% stake in TV Guide Network and TVGuide.com for $123 million. The all-cash deal helps offset the $250 million Lions Gate paid for the cable channel and website.
The buyer, One Equity Partners, is the same group that Lions Gate outmaneuvered this year in acquiring the assets with a surprise rival offer. An investment arm of JPMorgan Chase, One Equity Partners retains the right to buy an additional 1% of the venture.
Proceeds from the sale will help Lions Gates bolster its balance sheet, which at the end of December showed $130 million in cash on hand. Lions Gate could use the money from the sale to continue building its core movie and television businesses or spend it on new programming for the TV Guide channel, which is in dire need of a makeover.
Lions Gate may also need the cash for a more pressing reason: to defend itself against Icahn if he moves ahead with a proxy war for control of the studio. Icahn, who owns 14.5% of Lions Gate, has criticized the Santa Monica studio's leaders, Jon Feltheimer and Michael Burns, for the company's high overhead and overpaying for TV Guide.
In January, Lions Gate elbowed One Equity Partners and investor Allen Shapiro out of a deal to buy the TV Guide assets from Macrovision Solutions Corp.
At the time, Macrovision, a Santa Clara, Calif., technology company, said Lions Gate's offer was superior because the deal could close sooner and wasn't encumbered by contingencies. Shapiro had said that he and One Equity Partners were blindsided by Lions Gate's move but hinted that the investors shouldn't be written out of the picture.
"It remains to be seen if the final chapter is written yet."
As it turned out, Shapiro was right.
After Lions Gate's deal for TV Guide closed in late February, the company began talking to potential financial and strategic partners, including One Equity Partners and Hasbro. But this month, the toy maker landed a deal with Discovery Communications to launch a children's entertainment network in 2010.
Feltheimer said he liked the idea of One Equity and Shapiro as financial partners because they had already vetted the asset and saw its potential value. It also appealed to him that the private equity firm, which manages $8 billion in investments for JPMorgan Chase, was "deep-pocketed and able to pledge financial resources to grow the channel." Lions Gate already has a long-standing banking relationship with JPMorgan Chase.
Shapiro and Feltheimer said they would continue to look for other business opportunities for Lions Gate and the investor group, including "opportunistic" acquisitions.
More immediately, they will work on steering TV Guide channel, which under previous owners has never found a way to capitalize on its brand name and availability in 83 million homes. Shapiro said TV Guide's name would eventually be changed because the channel's trademark scrolling grid of TV listings would soon be discontinued.
"We want this to be a major entertainment channel with new and syndicated programming, and it will have a new focus," said Shapiro, an independent media entrepreneur.
But Lions Gate's recent attempt to land some popular programming fell short. Last month the studio failed in its bid to buy the reruns of the HBO series "Entourage."