BR&B Files Lawsuit in Connection with Lions Gate Entertainment Corp.'s Proposed Acquisition of Starz

7/19/2016 - Barrack, Rodos & Bacine announces that it has filed a lawsuit in the Delaware Court of Chancery alleging that Lions Gate’s proposed acquisition of Starz has been orchestrated by John Malone, the billionaire titan and controller of Liberty Global Media, to ensure his profit and domination of both companies at the expense of Starz Series A shareholders.

On June 30, 2016, Starz and Lions Gate announced that Lions Gate would acquire Starz for a combination of cash and stock they valued at $4.4 billion.  The terms of this acquisition are complicated and involve a number of steps.  But based on the figures Starz and Lions Gate have provided, the complaint alleges that Starz Series A shareholders will receive only a 14.0% premium on their Starz Series A shares, whereas Malone and other insiders will received a 20.6% premium on their Starz Series B shares.  In addition, while Starz Series A shareholders will lose their voting rights in this transaction, Malone and other Series B shareholders will retain their voting rights.  As alleged in the complaint, “Malone has structured the deal in such a way that Liberty — which he dominates — will maintain in the combined entity voting power that is disproportional to its economic interest via a dual-class equity structure that strips Starz Series A stockholders of their voting power.”  Thus, while Starz Series A shareholders currently have voting rights associated with their shares, the complaint alleges that “once the proposed transaction is consummated, these shareholders will maintain equity ownership of the combined entity, but will be stripped of all of their voting rights.”

The complaint further alleges that Malone controls the boards of directors of both Starz and Lions Gate, having appointed many of these board members through his Liberty Global Media.  The complaint also alleges that as of March 31, 2016, Malone and his affiliates controlled over 50% of Starz voting power, which, among other things, has allowed Malone to engineer this transaction to benefit himself to the detriment of Starz Series A shareholders.  Analyzing the proposed acquisition, an article in The New York Times noted that the deal would give Malone and one of his fellow Lions Gate board members a “near-controlling [voting] block [in Lions Gate] after the acquisition wielding more than one-third of the votes with barely more than one-quarter of all shares.”

The complaint alleges that Malone, other insiders, and the Starz directors have breached their fiduciary duties to Starz Series A shareholders and seeks damages and other relief on behalf of Starz Series A shareholders.

A copy of the complaint is available here.  For additional information about the case, please contact Barrack Rodos & Bacine at (215) 963-0600, or via e-mail to Jeffrey Golan at jgolan@barrack.com, Julie B. Palley at jpalley@barrack.com, or Michael Toomey at mtoomey@barrack.com.