Company's Corporate Governance Structure Should
be Repositioned as Part of the Proposed Separation of Starz
Neuberger Berman Calls Upon the Board to Embrace
This Core Governance Principle and Take Action to Eliminate the
Dual-Class Share Structure
Neuberger Berman Encourages Fellow Lions Gate
Shareholders to Vote FOR Proposal 6 at Upcoming Annual General and
Special Meeting of Shareholders
NEW
YORK, Oct. 16, 2023 /PRNewswire/ -- Neuberger
Berman a private, independent, employee-owned investment manager,
today announced that it has submitted a proposal (the "Proposal")
calling on the Board of Directors of Lions Gate Entertainment Corp.
("Lions Gate" or the "Company") (NYSE: LGF.A, LGF.B) to take all
reasonable and necessary steps to eliminate the dual-class share
structure of the Company. The Proposal will be presented to
shareholders for a vote as Proposal 6 at the Company's 2023 Annual
General and Special Meeting of Shareholders, which is scheduled for
November 28, 2023 (the "Annual
Meeting"). Neuberger Berman, on behalf of its clients, has been an
investor in Lions Gate since 2016.
The Proposal requests that the Board take all reasonable and
necessary steps to ensure that each outstanding share of common
stock has one vote.
Lions Gate's dual-class structure has existed since the
Company's merger with Starz in 2016. Neuberger Berman strongly
believes that the planned separation of the Starz business should
be implemented in a manner that positions the company that will
hold the remaining Starz business and the company that will hold
the separating Studio business with governance structures that
align the voting and economic interests of all shareholders.
Neuberger Berman believes there are several reasons to support
the elimination of the dual-class structure at Lions Gate,
including:
- "One share, one vote" is a foundational principle of corporate
governance for which numerous stakeholder groups, including the
Council of Institutional Investors, the Investor Stewardship Group
and the International Corporate Governance Network have expressed
strong support.
- Dual-class share structures are inconsistent with market
practice, with just 7% of S&P 500 companies maintaining share
structures with unequal voting as of September 30, 2023, according to FactSet.
- The dual-class structure may increase risk. According to the
Company's 2022 10-K, "an increase in the ownership of Class A
shares by certain shareholders could trigger a change in control,"
which could precipitate an event of default under the Company's
debt agreements.
- The dual-class share structure may impair value, with Lions
Gate's Class B shares trading at a discount to the average of the
Company's 10-K performance peers based on a forward Enterprise
Value to EBITDA multiple. Neuberger Berman believes that the
discount is driven in part by the dual-class structure, which
dampens trading liquidity, complicates the capital structure and
gives certain shareholders outsized influence.
Benjamin Nahum, Managing Director and Senior Portfolio Manager
of Neuberger Berman, stated, "In our view, eliminating the
dual-class structure would benefit shareholders by giving them
voting rights commensurate with their economic interest. We
encouraged the Board to take the lead on this issue and afforded it
the opportunity to act proactively. While we believe that the Board
understands the need for a single class of voting shares, there is
an unexplained reticence to move expeditiously and in conjunction
with the plan of arrangement by which Lions Gate is separating
the Starz and Studio businesses."
Mr. Nahum continued: "We again call upon the Board to take
action to remediate this governance deficiency by aligning voting
and economic interests prior to the effective time of the
contemplated business separation, such that all shares of Lions
Gate and the newly separated company are entitled to one vote per
share. In the meantime, we encourage our fellow shareholders to
vote FOR Proposal 6 at the Annual Meeting to underscore for the
Board the importance of equal voting rights."
In connection with its submission of the Proposal in September,
Neuberger Berman also sent a letter to the Company's Board of
Directors (the "Board"), a copy of which is below.
IMPORTANT NOTICE: Neuberger Berman is NOT asking for shareholder
proxies. It will not accept proxy cards, and any proxy cards
received will be returned.
September 28, 2023
BY EMAIL AND OVERNIGHT MAIL
Lions Gate Entertainment Corp.
2700 Colorado Avenue
Santa Monica, California 90404
Attention: Board of
Directors
Re: A Meeting to Discuss a Proposal to Enhance Governance and
Alignment
Dear Members of the Board:
We are writing to you on behalf of Neuberger Berman Investment
Advisers LLC (together with its affiliates, "Neuberger Berman,"
"we" or "us"). Neuberger Berman is an employee-owned investment
manager with a long-term orientation and a strong commitment to
good corporate governance practices. We manage approximately
$443 billion in assets on behalf of
institutional investors, pension funds, foundations and individuals
as of June 30, 2023.
Neuberger Berman has been invested in Lions Gate Entertainment
Corp. ("Lions Gate" or the "Company") since early 2016. On behalf
of our clients, we currently own 19,520 Class A Voting Shares (the
"Class A" shares) and 6,703,879 Class B Non-Voting Shares (the
"Class B" shares), making us one of the Company's largest active
owners based on our aggregate economic interest in the Company.
Lions Gate is a fundamentally sound business, with a deep
library of content, a valuable portfolio of brands and properties
and a track record of delivering critically acclaimed
entertainment. Yet, despite the strength of its assets, Lions Gate
has underperformed its self-selected peers. Lions Gate's Class B
shares have lost approximately two-thirds of their value since the
dual-class structure was instituted in 2016. And, since then, the
Company has at times traded at a meaningful discount to the
Company's peers, based on forward EBITDA multiples.
We believe the long-term underperformance and discounted
valuation are driven, in part, by the Company's dual-class share
structure, which limits trading liquidity, complicates the capital
structure and gives Class A shareholders outsized influence.
More generally, we believe good governance aligns interests,
ensures accountability and helps to drive value creation over the
long-term. Among the most important governance features to us is
the principle that voting rights should be aligned with economic
interests. Our Proxy Voting Guidelines enshrine that view. The
Council of Institutional Investors and the Investor Stewardship
Group both agree and support "one share, one vote" as a bedrock
principle of good corporate governance.
The current dual-class structure at Lions Gate was created in
connection with the acquisition of Starz in 2016. Given the
Company's proposed separation of its Starz and Studio businesses
into two separate public companies, we believe now is an ideal time
for the Board to unwind this suboptimal and unusual structure. In
our view, aligning the voting rights of shareholders with their
economic interests at both Starz and Studio will improve alignment
and accountability and enhance the prospects for sustained value
creation.
We therefore call on the Board to remediate this governance
deficiency by aligning voting and economic interests prior to the
effective time of the contemplated business separation, such that
all shares of Lions Gate and the newly separated company are
entitled to one vote per share.
If the Board does not address this issue prior to the 2023
Annual and Special Meeting, we intend to have shareholders opine on
this important matter at that Meeting. Accordingly, you will find
attached a shareholder proposal, made pursuant to Exchange Act Rule
14a-8, for inclusion in the Company's proxy materials for the
Annual Meeting. The proposal, if supported by shareholders, would
call upon the Board to adopt a "one share, one vote" structure
before finalizing the contemplated business separation. (As you
will see, the proposal is structured in a manner that provides the
Board with the flexibility to determine the fair and appropriate
means for achieving this objective.)
We also reserve our rights to appear in front of the Supreme
Court of British Columbia (the
"Court"), both at the interim and final stages of approval for the
Plan of Arrangement, including to challenge the fairness of the
transaction. To that end, we hereby request that you provide notice
to us reasonably in advance of the dates of any such proceedings
and deliver to us copies of all materials you intend to submit to
the Court.
We hope the Board understands the importance of this core
principle of corporate governance and acts on its own to remedy
this governance flaw, effectively mooting the need for us to take
our concerns to the Court and our fellow shareholders. If the Board
has any hesitation about doing so, we would appreciate an
opportunity to address the full Board to discuss our perspectives
in detail.
Sincerely,
Benjamin Nahum
Managing Director and Senior Portfolio Manager
Neuberger Berman
About Neuberger Berman
Neuberger Berman, founded in 1939, is a private, independent,
employee-owned investment manager. The firm manages a range of
strategies—including equity, fixed income, quantitative and
multi-asset class, private equity, real estate and hedge funds—on
behalf of institutions, advisors and individual investors globally.
Neuberger Berman's investment philosophy is founded on active
management, engaged ownership and fundamental research, including
industry-leading research into material environmental, social and
governance factors. Neuberger Berman is a PRI Leader, a designation
awarded to fewer than 1% of investment firms. With offices in 26
countries, the firm's diverse team has over 2,750 professionals.
For nine consecutive years, Neuberger Berman has been named first
or second in Pensions & Investments Best Places to Work in
Money Management survey (among those with 1,000 employees or more).
The firm manages $449 billion in
client assets as of September 30,
2023. For more information, please visit our website at
www.nb.com.
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