Evidence of meeting #18 for Canadian Heritage in the 40th Parliament, 3rd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was company.
A recording is available from Parliament.
11:25 a.m.
Member of the Board, Lionsgate Entertainment Corporation
First, the share of the market under Canadian control is, I believe, less than 7% of what appears on the screens. Canadian companies have to...
to provide funds.
11:25 a.m.
Member of the Board, Lionsgate Entertainment Corporation
Yes. They have to find funding for Canadian productions. This is an important source of funding for producers. Each time a distributor disappears, there is less competition among distribution companies. It is likely that one of the buyers would be one of our current competitors; it is our opinion that reducing competition cannot be to the advantage of Canadian producers.
11:25 a.m.
Bloc
Carole Lavallée Bloc Saint-Bruno—Saint-Hubert, QC
Okay.
Let me play the devil's advocate, so to speak.
Why don't you just let them?
11:25 a.m.
A voice
Why don't we let them...
11:25 a.m.
Bloc
Carole Lavallée Bloc Saint-Bruno—Saint-Hubert, QC
Why do you not let the Icahn Group buy your company and do what it wants? You collect up all your marbles, you go elsewhere and you do something else.
11:25 a.m.
Member of the Board, Lionsgate Entertainment Corporation
It is not as simple as that.
11:25 a.m.
Member of the Board, Lionsgate Entertainment Corporation
As a board of directors, we have to act in the best interests of the shareholders and the company. At some stage, for some price, it is possible that we might have to consider an offer.
But, at the moment, and from the public statements we have heard from Icahn, nothing has convinced our board of directors that it is in the interests of the shareholders to accept its offer. It is as simple as that.
June 3rd, 2010 / 11:25 a.m.
NDP
Brian Masse NDP Windsor West, ON
Thank you, Mr. Chair.
Thank you for appearing here today.
I'm the New Democratic Party's industry critic. Charlie Angus gives his regrets; he cannot be here today. But I have been dealing with the Investment Canada Act for nearly eight years, everything from China Minmetals, Xstrata, Falconbridge--a whole series of takeovers. This one is a little bit different. This is an interesting one, because usually we deal with a number of the takeovers related to the argument that there needs to be more investment, and there can be unlimited investment in a company, but it's the controlling shares. But this is a different one. It's a complete buyout.
I do want to confirm a couple of things. Right now is anyone in your organization meeting with Icahn or representatives about a potential takeover? Are active negotiations taking place?
11:25 a.m.
Chief Executive Officer, Lionsgate Entertainment Corporation
We currently have no discussions going on with the Icahn Group.
11:25 a.m.
NDP
Brian Masse NDP Windsor West, ON
Say, for example, they came in with a sweeter offer and upped the ante. Your position would not change with regard to the Investment Canada Act and the net benefit to Canada?
11:25 a.m.
Chief Executive Officer, Lionsgate Entertainment Corporation
You are asking two questions. The first question is obviously that our board of directors has the obligation and fiduciary responsibility to examine any offer that Mr. Icahn makes. If, as part of that, he were to say some things or make some offers that would be of obvious benefit to Canada that one could actually quantify, that one could actually believe would really happen, then obviously that perhaps would change our position.
What is kind of interesting about your question is this, and really I think the issue here in front of the committee is that we're asking the committee to review what we've actually done here in Canada. What Mr. Icahn, the Icahn Group, is asking for is for you to believe actually what he said. If you actually even review his recent history in terms of what he said in Canada, what he said at the British Columbia Securities Commission, basically was, “I will not extend my offer”, and he has extended it three times. He said, “I will not raise my price”, and he raised his price. He said he would not reduce his minimum condition, but he has just recently reduced his minimum condition. The effect of that is very significant because what he has created--and I know that is not the purpose of this committee--by reducing the minimum condition is essentially a creeping takeover.
Again, I would ask you, sir, to think about exactly what we have done in Canada, not what we're telling you we're going to do, and frankly, not what Mr. Icahn is telling you he will do.
11:30 a.m.
NDP
Brian Masse NDP Windsor West, ON
I just want to make sure it's clear on the record, though. This isn't about the value of the stock itself as a lone issue in the decision about Lionsgate's position. That's what I want to make sure is clear at this point in time. What you are telling me right now is that the only negotiation that is really taking place is Mr. Icahn's public statements versus that of meetings going on behind closed doors with someone, with either authorized agents from Lionsgate or his organization. I just want to make sure that's clear.
11:30 a.m.
Chief Executive Officer, Lionsgate Entertainment Corporation
That is a fair question. There are absolutely no discussions going on right now with Mr. Icahn.
11:30 a.m.
NDP
Brian Masse NDP Windsor West, ON
Thank you.
With regard to Lionsgate, what is the percentage of production in Canada versus that in the United States? We have a shared industry in many respects. What is your production level in Canada versus the United States?
11:30 a.m.
Chief Executive Officer, Lionsgate Entertainment Corporation
I've never run the math on that. Again, it has been very significant here. Our television business has been significantly involved here in Canada. We just recently finished shooting our first network prime time scripted show, Running Wilde, which we shot in Vancouver. I believe that was a $3.5 million, $4 million production. We are currently shooting in Montreal, beginning pre-production on the second season of Blue Mountain State, which is something we have done with SGF, Société générale de financement, with which we have a $400 million production facility to do feature films and television production in Quebec. So it's been a very, very significant portion. I would have to actually go back, and I would be happy to supply you with those details.
11:30 a.m.
NDP
Brian Masse NDP Windsor West, ON
That's fair. Maybe a follow-up would give us an idea of that, because there have been the allegations.
How many Canadian employees do you actually have, permanent employees who are actually in Canada? You mentioned that you're running out of Maple your office operations here. Maybe you could describe more of the physical presence that you have in Canada for part of your production and also your distribution.
11:30 a.m.
Chief Executive Officer, Lionsgate Entertainment Corporation
Sure.
Actually, in contrast to what I believe would happen with the consolidation of Maple with another buyer, we've actually expanded our Maple business. I can't tell you the exact amount of employees we have in our Toronto office. My guess is it's around 40, but we've actually expanded their business.
As you may or may not know, our business in Toronto, our distribution, is actually a number of different activities. It's not only distributing the Lionsgate films, but actually we've expanded this year, and a full third of our business, from a revenue perspective, was actually films that were not Lionsgate. You may or may not know that we also distribute all of the French language films from Equinoxe. We are the English Canada distributor of those films. Together with Lionsgate, Maple goes out into the international market and acquires third-party films. Frankly, it's very much because of the other rights that Lionsgate is able to buy that Maple is able to finance those films.
So our whole idea with Maple over the last two or three years is to give our Canadian employees an ownership interest, and to incentivize them to grow well beyond just the Lionsgate product and to build their overall business as a Canadian company.
11:30 a.m.
Conservative
11:30 a.m.
Conservative
Dean Del Mastro Conservative Peterborough, ON
Thank you, Mr. Chairman.
I thank the witnesses for appearing here today.
Obviously these are delicate discussions because this is something that's currently under consideration. But I do want to ask you a couple of questions, and don't be offended by what I'm saying. I'm just trying to draw out the discussion a little bit.
You're a publicly traded company.
11:35 a.m.
Conservative
Dean Del Mastro Conservative Peterborough, ON
When you put shares on the market, especially if you're going to extend ownership of the company to such a degree that somebody could in fact come over and take over the company, that is a risk you take on the market.
We heard testimony the other day--no offence to the board members present--that the board doesn't know what they're doing, the company is making bad investments, and you're the reason why the stock, of which Mr. Icahn owns 20% of the shares, roughly, is undervalued. He's not happy about it, so he's going to fix it, and he's a value investor.
I think you've indicated he's in a whole bunch of different companies. He thinks he knows better how to run them. He seems to have made a bit of money. Maybe he knows a thing or two about business. I follow the market quite a bit. I think he probably does.
My concern when I'm reviewing this, and Mr. Rodriguez has adequately put this into perspective, is that we're at a point now where we're just looking at net benefit to Canada. Ultimately my concern is that sometimes companies like yourself could be perceived as Canadian by convenience. Four percent of your shares are actually Canadian. You're producing things in Canada, but lots of companies are producing films in Canada, because we have great incentives. I think we have a pretty good industry that we've worked on building. So it's not exclusive. It's not like you're the only company that's producing films in Canada.
It's delicate, because if we operate the rules like it's a kangaroo court and we say we're going to protect these guys just because we think we should, foreign investment is looking at it and saying, wait a minute, there are rules, you've set up the rules, and you argue that this is how it should work, but then you make special exemptions to it because you're not prepared to accept a commitment from somebody who's prepared to say... And I'll agree with you 100%, they have not indicated what their commitments to Canada are. They must be making those commitments to the department and to the ministry. We're not entitled to know what they are.
But if outsiders are looking at this, frankly, there's some danger to a country that fashions itself as being a free market economy that wants to build itself by both making investments into foreign jurisdictions and receiving foreign direct investment into its country. I'm just concerned.
My first question is, are you Canadian by convenience? Is this your corporate head office? They said it's a mailbox in Vancouver.
11:35 a.m.
Chief Executive Officer, Lionsgate Entertainment Corporation
If you'll pardon this answer, there has been nothing convenient about being a Canadian company, and we did just run into what we thought was a very bad decision at the British Columbia Securities Commission. We felt we had a very bad decision from the Court of Appeal, with very little input from us, but we have been a Canadian company from the beginning. I read pretty much every day some article from around the world about Lionsgate that starts with “Lionsgate, the Canadian entertainment or media company”.
In every one of our actions, I report to--and every employee at our company reports to--a Canadian-controlled board. There is nothing we do...every one of our committees, I believe, is controlled by Canadians. There is no strategic deal that we do, there is no budget that gets acted upon without the approval of a Canadian board. We have a very vibrant distribution company in Toronto. We have grown that company, and I believe we have honoured the commitment that Canada has made to our company by returning that commitment and that investment in terms of significant production that, frankly, we can produce anywhere else in the world.
I think we have been a very loyal partner to Canada, and Canada has been a very loyal partner to us, and together Canada and Lionsgate have built a major media giant. By the way, it was the same management team. In 2000, when I came to the company, our stock was, at one point, $1.50. The stock is now $7. We were doing less than $100 million of revenue. We're doing close to $2 billion. This management company has grown that company and continues the commitment to the production and distribution of English and French language films in Canada. There was nothing particularly convenient about that.
