Today, Carl Icahn continued to rattle Lionsgate’s cage, issuing a press release that suggests that the corporate raider wants someone to trigger the change in control provision that would force the company to default on its credit facility and debt.
Icahn writes, “a ‘Change in Control’—triggered by ownership of more than 20% of the equity—could result in an event of default under the credit facility, resulting in a cross-default and acceleration of Lions Gate’s obligations under the notes. In turn, this could trigger accelerated repayment obligations under both the credit facility and the notes. However, the company fails to communicate [in the press release it issued last week] whether its current liquidity position would be sufficient to meet such obligations.”
Icahn further speculates that Lionsgate is low on cash by wondering where the company got the money for its $255 million all-cash acquisition of TV Guide if it only had $131 million on its balance sheet as of December 31 and the company didn’t tap its revolving credit facility. (Lionsgate told the LA Times that they generated cash for the acquisition internally).
It seems as though Icahn might be trying to force a change in control so that Lionsgate will default on its credit facility and then, if the studio’s unable to repay its obligations, he will have proven that the company’s as low on liquidity as he thinks it is. Furthermore, by planting the idea that Lionsgate might not be able to repay its debt if it needs to do so on an accelerated schedule, he also leads people to think that it might be wise for Lionsgate’s debtholders to sell their notes to someone with a little more financial stability, like, say, Carl Icahn.
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