Lions Gate Falls Most Since May on Share Offering, Forecast

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Lions Gate Entertainment Corp. fell the most in almost a year after its largest investor, Chairman Mark Rachesky’s MHR Fund Management, filed to sell almost a fifth of its stake and the company narrowed its profit outlook.

Lions Gate, the independent film studio that made “The Hunger Games” films, lost 6.6 percent to $31.45 at the close in New York, the biggest decline since May 2014. The stock is down 1.8 percent this year.

“We view both as negative: the guidance for obvious reasons and the secondary not so much of the size of the stake, which we view as manageable, but rather that the secondary signals an inability to sell the stake to a strategic buyer,” Benjamin Mogil, an analyst at Stifel Nicolaus & Co., wrote in a research note. He rates the stock a buy.

Rachesky, 56, has profited handsomely from Lions Gate, with the stock rising more than fivefold in the past five years. A former Carl Icahn protégé, he has owned a stake since 2004 and backed the Santa Monica, California-based studio in fighting a hostile bid by Icahn in 2010. He became co-chairman of Lions Gate in 2011, and is now non-executive chairman.

The studio, which also makes the “Mad Men” TV series, said Rachesky will sell 10 million shares in a underwritten offering at $32 each. The company isn’t selling any stock and won’t receive any proceeds, according to a statement Tuesday.

The studio on Tuesday said adjusted earnings before interest, taxes, depreciation and amortization were tracking toward the lower end of its prior guidance of $1.2 billion to $1.3 billion over the three years ending in March 2017. Analysts cited the underperformance of some recent films.

Additional Option

Underwriter JPMorgan Chase & Co. was granted an option to purchase an additional 1.5 million shares. If Rachesky sells the maximum, he will continue to hold almost 40 million Lions Gate shares and remain its largest investor, with at least 27 percent.

The investor is part of a group seeking to buy the Atlanta Hawks basketball team, the Atlanta Journal-Constitution reported on April 3.

In February, Lions Gate increased its shares outstanding to 145.5 million with a stock-swap transaction that gave Lions Gate a 4.5 percent stake in billionaire John Malone’s Starz LLC.

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