Lionsgate shares fall after chairman's stock sale announced

Lionsgate shares fall after chairman's stock sale announced
Theo James, Shailene Woodley and Miles Teller in a scene from "Insurgent." (Andrew Cooper / Associated Press)

Lionsgate shares fell the most since last May on Wednesday after the Santa Monica studio said its chairman will sell 20% of his stake in the company.

The stock declined $2.23, or 6.6%, to $31.45. Lionsgate said after the close of trading Tuesday that its chairman and largest shareholder, Mark Rachesky, will sell 10 million shares, taking his stake in the company to 27% from 35%.

It would be the first time that Rachesky has sold his shares in the 10 years he's been invested in the company. Lionsgate said the shares will be offered at $32 apiece and sold through Rachesky's investment firm, MHR Fund Management.

The studio behind the "Hunger Games" and "Divergent" series said in a regulatory filing that it will not receive any proceeds from the offering of Rachesky's shares. JPMorgan, which is underwriting the offering, has a 30-day window to buy an additional 1.5 million shares.

Lionsgate also gave updated three-year earnings guidance to investors, saying profit would be "within the lower range" of its previous projections of $1.2 billion to $1.3 billion.

Analysts attributed the more conservative guidance to slightly lower than expected domestic box-office returns for the "Divergent" sequel "Insurgent." The film has grossed $105 million in the U.S. and Canada since its March 20 debut, which is a bit behind the pace of its predecessor. However, the film has taken in a strong $120 million overseas.

Stifel analyst Benjamin Mogil described both the narrowed guidance and the stock sale as "negative." The offering "signals an inability to sell the stake to a strategic buyer," Mogil said in a research note.

Others downplayed Rachesky's planned stock sale.

Piper Jaffray analyst James Marsh said in a note to clients that any weakness in Lionsgate's stock in reaction to the news should be seen as a "buying opportunity" for investors.

Rachesky's stock offering comes amid speculation that the chairman might sell his stake to an investor wanting to gain a foothold in Hollywood.

Chinese companies Alibaba Group and Dalian Wanda Group are said to be interested, and analysts have speculated that billionaire media investor John Malone, a new Lionsgate board member, will buy more shares.

In February, Malone bought a 3.4% stake in the studio. That deal was structured as a stock swap between Lionsgate and the pay-TV channel Starz, where Malone is the largest voting shareholder.

Although Tuesday's announcement dampened some of the speculation over a bigger sale, FBR Capital Markets analyst Barton Crockett left open the possibility for a strategic deal in the future.

"We still believe [Lionsgate] shares could, over time, end up being accumulated by Malone or other strategic investors," he wrote in a research report.

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