Just when it looks like it's safe to buy Lions Gate Entertainment (NYSE: LGF), something comes along to ruin the party. In this case, it's Carl Icahn.
Well, that's not exactly fair. Lions Gate has been ruining its own party to some degree. I remember taking a look at the studio's Q3 numbers and finding that the movie business is indeed risky. Lions Gate is more of a pure play on Hollywood than say Disney (NYSE: DIS), Time Warner (NYSE: TWX), or Sony (NYSE: SNE) are. Because of that, the exposure to a bad slate of projects hurts it more than a company that also owns a theme park and/or a major television network. Poor Lions Gate reported a loss in Q3, and cash was used for operations. Not a good situation.
I've been watching Lions Gate's stock for a while, and I always want to find an excuse to enter a position. I mean, the shares seemed to be exhibiting at least a little strength in recent weeks. And who knows, maybe the 6% drop in the stock price on Friday is a trading opportunity.
Only problem is, Icahn has been rumbling a bit over the company. Julia Boorstin sums up the Icahn angle very nicely over at CNBC.com. She talks about Icahn's debt tender offer and his desire to have some say in the boardroom (Zac Bissonnette also wrote about this). Actually, I think it's cool that he's trying to shake things up from a fundamental standpoint, but from a trading perspective, I think it makes the stock possibly unattractive. Maybe I'll turn out to be wrong on that count. After all, I agree that Lions Gate's current management has yet to find the magic formula for maximizing shareholder value. Actually, no media company has. You look at Disney, you look at Time Warner, and you wonder how they've remained cheap for so long. I guess it's all about the perception of risk in terms of content. Sometimes content works, sometimes it doesn't, but there is one constant: it's expensive as hell. Budgets and marketing take up a lot of the profits, and a big box-office failure can really ruin things.
So, perhaps Icahn's involvement will eventually take the stock higher. But there's no guarantee of that. His involvement doesn't always act as a definitive catalyst of capital appreciation. You might get some quick trading profits from it, sure, but you've got to be careful.
Lions Gate management doesn't seem too thrilled with Icahn. Maybe they shouldn't be. All I can do now is watch and wait. Maybe I'll miss the trade here. If so, so be it. Icahn likes to fool with companies. He's recently been involved in corporate issues surrounding Yahoo! (NASDAQ: YHOO), and I'm sure everyone recalls his dealings with Time Warner (see this article and this one).
I guess I'll have to remain wary on Lions Gate. I just don't know if this latest development is going to help out or not. Is a significant dip below $5 per share a buying opportunity? My gut says yes, but my less emotional side just doesn't like this disharmonious tug of war.
Disclosure: I own Disney; positions can change without notice.
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Reader Comments (Page 1 of 1)
3-29-2009 @ 2:15PM
Kent said...
I could be wrong but having Carl Icahn involved in the mix has historically been controversial to the detriment of the shareholders. The impression I have of Mr. Icahn is that he generally makes separate deals with companies either through stock-buyouts just to get rid of him or management changes with people he chooses on the board that ultimately breeds tension or dissension within the company ranks. In otherwords, he's poison. I'd avoid LGE for that reason.