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Lions Gate stock falls 7% on Carl Icahn's decision to sell shares

Analysts say the drop in Lions Gate's stock price was not surprising because the process for selling Icahn's shares is not over and because of the abruptness of Icahn's decision to unload his holdings.

September 01, 2011|By Ben Fritz, Los Angeles Times
  • A scene from the cable show "Mad Men," produced by Santa Monica film and television studio Lions Gate Entertainment.
A scene from the cable show "Mad Men," produced by Santa Monica… (Michael Yarish, AMC )

Lions Gate Entertainment Corp.'s settlement with dissident shareholder Carl Icahn removed a long-standing threat to the company and its management but didn't do any favors for its stock.

Shares of the Santa Monica film and television studio behind the current release "Conan the Barbarian" and the cable show "Mad Men" dropped 56 cents, or 7%, to $6.96 on Wednesday, following Tuesday's announcement that Icahn had struck a deal to sell nearly all of his 33% stake in Lions Gate.

Icahn agreed to unload his holdings for $7 a share. Lions Gate will buy 25% of the 44.2 million shares, and Mark Rachesky, the second-largest shareholder, behind Icahn, will buy the same amount. The studio has 35 business days to sell the remaining shares at the same price.

In research notes issued Wednesday, analysts said the drop was not surprising.

"We expect [Lions Gate] shares to trade at close to $7 until the sale process is complete," wrote Cowen Group analyst Doug Creutz. "However, we view this announcement as an overall significant positive for … shares. The sale will remove the overhang of Icahn's position and definitively put the dispute behind the company."

Lions Gate stock traded as high as $7.65 in the fall amid Icahn's attempts to acquire shares and take control of the company. After Icahn abandoned those efforts in December, the stock dropped below $6 before climbing to $7.52 on Tuesday.

Some on Wall Street were surprised at Icahn's abrupt decision to exit Lions Gate, which may have also contributed to the stock's decline.

"This came out of left field for investors and creates some uncertainty," said Hudson Square Research analyst Marla Backer. "A lot of people don't want to be exposed to a situation that they don't understand."

Going forward, Lions Gate executives are pinning their hopes on "The Hunger Games," the first in a planned series of four movies based on the bestselling books that will hit theaters in March.

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