Canadian Heritage Committee on June 1st, 2010

[Charlie Angus, NDP, Timmins—James Bay, ON]

Okay, I want to say this clearly. I met with Georgia-Pacific three weeks ago about taking over a Canadian company. They sat down and they told me what their commitments were going to be. They told me how many people were going to be retained. They told me what the operations were going to be.

You tell us this is all privileged. I mean, if you were trying to sell me a house and wouldn't give me any of the details, I certainly wouldn't buy it from you. You can't hide behind this privilege. You either have a plan or you don't. So just tell us what it is.

[Keith Schaitkin]

With all due respect, there is a process that's been established by Parliament. It involves speaking to the minister and his representatives. We've done that extensively. We've made ourselves available. We're following that process—

[Charlie Angus, NDP, Timmins—James Bay, ON]

Can't you just tell us one good thing, a couple of ideas, what your vision is? Is that privileged?

[Keith Schaitkin]

Well, I think I did tell you that—

[Charlie Angus, NDP, Timmins—James Bay, ON]

I'd feel like a sucker if I were buying into this deal.

[Keith Schaitkin]

What I've tried to explain to you is that we are concerned about the viability of this company under this management team. We would have been happy to have a couple of guys on the board of directors who could have helped deal with those issues. That viability underlies all the operations, everything that's being done.

What we're concerned about with Lions Gate isn't the things they've done historically. It isn't the television production they've done in Canada, the distribution, or the film production they've done here and abroad. That's why we invested in Lions Gate. What we're concerned about are the acquisitions they're looking at, things that will involve borrowing substantial amounts of money and putting it into more risky investments. These things raise significant issues.

I will tell you, for example, there's been quite a lot of discussion about Lions Gate borrowing money, issuing a lot of stock, acquiring the library at Miramax. There's a lot of discussion in the investment community about whether film libraries are a viable investment, and you could put the entire company at risk with an investment like that. Now, management may think that's a good idea. We don't. We think it risks the company and would thereby risk all the things you're talking about. That's the best answer I can give you.

We intend to maintain the traditional business that Lions Gate's been involved with. That's our basic understanding. Might there be acquisitions that make sense? Could you get them done at prices that make sense? Perhaps, but we're concerned about where that all goes.

[The Chair, Conservative, Gary Schellenberger]

Thank you.

Mr. Del Mastro.

[Dean Del Mastro, Conservative, Peterborough, ON]

You made a statement early on that I think is important. You said there would be a strong disincentive to invest in Canada if the investment process required the investor to publicly disclose commercially sensitive information and engage in an open discussion about its future business plans, as this would benefit competitors and could compromise the investment and harm the company in which the investment is being made.

I think the rules are important when you're talking about the market. I know a thing or two about the market. Business is what I studied. I think it's important to follow the rules that Parliament establishes. If we don't, we start to look like a banana republic that nobody wants to invest in. So I will tell you that in my view the rules matter. That's the first statement I would make.

Are you aware of any special privilege given to the 4% Canadian shareholders that would provide them with authority to make sure that the board is inherently Canadian?

[Keith Schaitkin]

No. I think the company works like any other company. The Canadian stockholders have their votes like everyone else.

[Dean Del Mastro, Conservative, Peterborough, ON]

Right. So this is an operation of the market, that's the argument that you're making. You should be able to purchase these shares and any company that issues shares, that issues ownership in the company, does so with the knowledge that at some point somebody could buy a controlling interest and would be able to appoint the board. Is that not generally how the market operates?

[Keith Schaitkin]

That's right. I think that in this case there is also the overlay, the cultural issue, the film business. This has been dealt with by Parliament. They have set up specific rules and we're following them. So it's not just another acquisition company.

[Dean Del Mastro, Conservative, Peterborough, ON]

It's a separate process.

[Keith Schaitkin]

That's right.

[Dean Del Mastro, Conservative, Peterborough, ON]

This is a separate process from whether or not you can buy. Whether we approve it is an entirely different matter. This would require a discussion of net benefit for Canada and what the vision is. If it's to break the company up and hack and slash, that might not be seen as a net benefit to Canada. In that case, it wouldn't be approved.

Essentially, there are two separate issues here. One is that you're actively seeking to buy up enough ownership of the company to replace the board. The other is that this would have to be approved. Correct?

[Keith Schaitkin]

That's right.

[Dean Del Mastro, Conservative, Peterborough, ON]

And this is a normal function of the market, isn't it?

[Keith Schaitkin]

Yes, that's right.

[Dean Del Mastro, Conservative, Peterborough, ON]

So going back to your first statement where you said there'd be a strong disincentive to invest in Canada, if we don't have rules that govern how investments are made, if we don't respect the rules, if we don't respect the rules passed by Parliament.... A parliamentary committee cannot override legislation that's been passed by Parliament.

Parliament is not just the House of Commons, by the way. It's the executive, the House of Commons, and the Senate. When a bill is passed, a parliamentary committee cannot override it.

I guess I'm suggesting a couple of things. One, I encourage you to make that case of net benefit to Canada. I encourage you to look to Canada, if you are successful in this, as a great place to invest, not a good place to invest but a great place, and a great place to create movies, cultural content, and so forth.

I will also say that as far as I'm concerned, the rules mean something. I will not ask you any of those questions today. I do appreciate that you have clarified the situation you're in, how the market operates, and the fact that right now this is a market process, on the one side, and a process with the federal minister on the other hand that would oversee that process. It's really two situations.

[Keith Schaitkin]

Thank you very much.

[Dean Del Mastro, Conservative, Peterborough, ON]

Thank you.

[The Chair, Conservative, Gary Schellenberger]

I maybe have time for one more question from each person.

Are there any more questions? One quick question.

[Pablo Rodriguez, Liberal, Honoré-Mercier, QC]

I am trying to wrap my head around something. In the past few years, Lionsgate has proven itself to be a successful company. It used to bill several tens of millions of dollars, and today that number is nearly $2 billion. Why do you think you can do a better job managing the company than the current team?

[Keith Schaitkin]

We invested in the company. We thought their stock was undervalued. We tried to get into a position where we could have a few seats on the board to represent our position. They were very resistant to doing that.

We are concerned that the management team is looking at transactions. We were very concerned when they engaged in the acquisition of TV Guide a couple of years ago. We thought they paid too much for it, and they borrowed substantial sums to do it. We were afraid they were putting the health of the company at risk. I think the stock basically has reflected that over the years.

When we came into this stock in.... I'm sorry, you don't want to hear this.

[Pablo Rodriguez, Liberal, Honoré-Mercier, QC]

Basically you're saying you know their business better than they do.

[Keith Schaitkin]

When we get involved in companies, we don't try to run the business. We're investors. In other words, we're not going to go in and become film executives. What we will do, though, is to find people we think are very capable executives, in the same way we have done at our automotive business, our communications business, and our gaming businesses. We don't run those businesses. We sit on the board. We help to make policy. We look at how they're financing things. And we allow the management teams to run the businesses.

We're not comfortable with this management team, so we think our investment is at risk because of that.