Lions Gate Insider Buys Right Before The Big Drop – Insider Weekends

Returning to our list of top insider purchases this week is a familiar face, embroiled in a variety of special situations. We last wrote about the studio and streaming business, Lions Gate Entertainment Corp. (LGF.B), in our January 2023 monthly newsletter, stating the following:

Ramping up a streaming service is incredibly difficult and unprofitable as traditional media companies are starting to realize. In the battle for customer acquisition and retention, content remains king and explains why Amazon was willing to pay $8.5 billion to acquire MGM’s studio division. One of the few independent studio companies that is still around is Lions Gate Entertainment, which is especially known for its large and incredibly valuable content library – comprised of over 17,000 films and TV series.

For quite a while, Lions Gate had seemed like an attractive acquisition opportunity, especially considering their content library filled with hits such as the John Wick films (of which John Wick 4 was released in March 2023, grossing $432.2 million in the box office) and the Hunger Games trilogy (which has a prequel coming out this November). But Lions Gate’s studio and motion picture sectors are just one part of their business. They also own the streaming and cable services company, Starz, which they acquired in December 2016 for $4.4 billion.

It seems as if the Starz acquisition caused more trouble than it was worth for Lions Gate – at the end of the fiscal year 2023 (ended on March 31, 2023) the Media Networks (comprised of Starz and LionsGate+, an international version of Starz) services only had 20.3 million subscribers (when compared to 21 million the prior year). This decrease was mostly due to Lions Gate choosing to exit its position in multiple countries (such as France, Germany, Italy, Spain, Benelux, the Nordics, and Japan) as part of a larger LionsGate+ restructuring.

In May 2022, Lions Gate announced an initiative to spin off the Starz business. In November 2022, those plans changed, and it was announced that the studio business would be the one to be spun out instead. On July 10th, 2023, Lions Gate released a Form 10, outlining their further plans for the spinoff – in which it was revealed that much of the current management of Lions Gate (including current CEO, Jon Feltheimer and Chair Michael Rachesky) will become the new management for the new studio business spinoff. This “jumping ship” from one company to another is a rather interesting signal for the future of the possible studio spinoff, which will be retaining the valuable content library.

The market is concerned that the spinoff plans might be in jeopardy on account of a rumored acquisition. Since November 2022, Hasbro (HAS) has been working to sell its film production business, Entertainment One (referred to as eOne). In March 2023, it was reported that Lions Gate was one of the possible buyers for this company. As recently as July 17th, it was announced that Lions Gate was the frontrunner in the deal – although other companies, such as Legendary, Fremantle, and CVC Capital Partners have also made bids. It is worth noting that Lions Gate’s Vice Chair, Michael Burns, currently sits on the board of Hasbro – and in the past, Hasbro had offered to acquire Lions Gate in a deal valued at $41 per share in 2017.

The profile of Lions Gate insiders was something that first drew the company to our attention for the January monthly newsletter, and we wrote the following about a series of insider purchases:

The first time Lions Gate Entertainment came to our attention in 2019 was due to a series of purchases by Mark Rachesky. Dr. Rachesky, a former protégé of the famous activist investors Carl Icahn, founded his own fund, MHR Fund Management in 1996. Looking at the latest 13F filing for the firm reveals that Lions Gate Entertainment is the largest position in the fund, accounting for 40.45% of the portfolio, with over 35 million shares across both classes of Lions Gate Entertainment. In 2019, Dr. Rachesky purchased $22 million worth of Lions Gate, and early on in the pandemic, he purchased another $4.5 million worth of the stock. His initial pandemic purchases were at around $4.80 and once again when the stock was trading around $7.

Two years after his last purchase, in November 2022, Dr. Rachesky bought over 800,000 shares of Lions Gate, at an average price of $6.84 for a total of nearly $6 million. And while the stock has declined since his purchases, a cluster of insiders have also started buying shares – including purchases by Director Harry Sloan and CFO James Barge, but more importantly a series of purchases by Director Gordon Crawford.

A prominent figure within the private investment management company Capital Research and Management before retiring from his position as Senior Vice President in 2012, Gordon Crawford is known for taking Capital’s Growth fund from $12 million in assets to its peak of over $200 billion. More importantly, Mr. Crawford is famous for being an incredibly influential figure in the media and entertainment sphere, an advisor to the likes of John Malone, Ted Turner (founder of CNN), and Gerald Levin (former CEO of Time-Warner).

Unlike Dr. Rachesky, Mr. Crawford has consistently been buying shares of Lions Gate and adding to his position throughout the pandemic, at prices ranging anywhere from $7 to $15. He purchased shares in November at the same time as Dr. Rachesky for a total of $634,511, at an average price of $6.37 per share. More recently, on December 14th, 2022, Mr. Crawford purchased an additional 100,000 shares of the company for a total of $617,700.

This week’s insider purchase came from someone new, Director John D. Harkey Jr. Mr. Harkey is the Founder of JDH Investment Management, which focuses on opportunities in biotech, and also founded AveXis, which was acquired by Novartis in 2018. In addition to his position on the Board of Lions Gate, Mr. Harkey had also served on the board of companies such as Energy Transfer and Leap Wireless International, which was acquired by AT&T. Following his purchase on July 14th, the stock has already dropped by nearly 20% – a stark difference from the previous set of insider purchases mentioned above, which saw stock prices surge.

As we analyzed this situation and tried to figure out why the stock dropped so much, a thought came to mind that maybe the market is not looking at this situation the right way. The market is concerned that this acquisition of eOne could kill the planned spinoff and the realization of value that Lions Gate shareholders have been waiting for for a long time.

What if both of these things can be true at the same time? Maybe the play here is that Lions Gate will spin off its studios division and merge it with eOne in a tax free Reverse Morris Trust transaction, leaving the Starz and LionsGate+ streaming division behind with a debt laden balance sheet.

Pfizer did the same thing by spinning off its Upjohn generic drugs division and merging it with Mylan in a Reverse Morris Trust transaction. In that deal, Pfizer (PFE) emerged stronger post-spin and the new generic drugs company called Viatris (VTRS) turned out to be an underperformer. In this potential Lions Gate transaction, I expect the spin-off to emerge as the stronger company and I can see why the insider was buying after recent weakness in the stock. Given how much the stock dropped last week, I would not be surprised to see additional insider buying this week. I plan to retain our full position in Lions Gate in the model portfolio, which is still up 26% despite the recent pull back in the stock.

Welcome to edition 691 of Insider Weekends. Insider buying increased significantly last week with insiders purchasing $138.11 million of stock compared to $11.14 million in the week prior. Selling also increased to $619.34 million compared to $520.84 million in the week prior.

Sell/Buy Ratio: The insider Sell/Buy ratio is calculated by dividing the total insider sales in a given week by the total insider purchases that week. The adjusted ratio for last week dropped to 4.48. In other words, insiders sold more than 4 times as much stock as they purchased. This week, the Sell/Buy ratio was favorable, compared to the prior week when the ratio stood at 46.76.

Notable Insider Buys:

1. Asana, Inc. (ASAN): $21.6

President, CEO, & Chair Dustin A. Moskovitz acquired 320,000 shares of this work management platform, paying $23.15 per share for a total amount of $7.41 million. Mr. Moskovitz increased his stake by 0.80% to 40,552,803 shares with this purchase.

You can view the list of recent insider transactions for Asana, Inc. here.

2. Theseus Pharmaceuticals, Inc. (THRX): $3.59

Director Carl L. Gordon acquired 479,932 shares of this biotech company, paying $3.05 per share for a total amount of $1.46 million. These shares were purchased indirectly by OrbiMed Private Investments.

You can view the list of recent insider transactions for Theseus Pharmaceuticals, Inc. here.

3. Lions Gate Entertainment Corp. – Class B (LGF.B): $6.86

Director John D. Harkey Jr. acquired 100,000 shares of this movies and TV shows production and distribution company, paying $8.52 per share for a total amount of $852,000.

You can view the list of recent insider transactions for Lions Gate Entertainment Corp. – Class B here.

4. Ault Alliance, Inc. (AULT): $3.89

Executive Chairman Milton C. Ault III acquired 147,000 shares of this customized solutions provider for the military markets, paying $4.22 per share for a total amount of $620,743. These shares were purchased indirectly by Ault Alpha LP.

You can view the list of recent insider transactions for Ault Alliance, Inc. here.

5. MillerKnoll, Inc. (MLKN): $18.29

Shares of this interior furnishings company were acquired by 4 insiders:

• Director Michael A. Volkema acquired 13,584 shares, paying $16.95 per share for a total amount of $230,246. Mr. Volkema increased his stake by 7.26% to 200,670 shares with this purchase.
• Director Lisa A. Kro acquired 5,950 shares, paying $16.80 per share for a total amount of $99,948. Mr. Kro increased his stake by 18.08% to 38,856 shares with this purchase.
• Director Mike C. Smith acquired 4,000 shares, paying $17.25 per share for a total amount of $68,988. Mr. Smith increased his stake by 25.67% to 19,584 shares with this purchase.
• Director Michael R. Smith acquired 1,200 shares, paying $17.19 per share for a total amount of $20,629. Mr. Smith increased his stake by 1411.76% to 1,285 shares with this purchase.

You can view the list of recent insider transactions for MillerKnoll, Inc. here.

You can view the full list of purchases from this Insider Buying page.

Notable Insider Sales:

1. Airbnb, Inc. (ABNB): $148.77

Shares of Airbnb were sold by 3 insiders:

• Director Joseph Gebbia sold 516,666 shares for $138.83, generating $71.73 million from the sale. These shares were sold indirectly by a trust.
• Chief Technology Officer Aristotle N. Balogh sold 25,500 shares for $142.73, generating $3.63 million from the sale. These shares were sold as a result of exercising options immediately prior to the sale.
• Global Head of Hosting Catherine C. Powell sold 6,900 shares for $145.00, generating $1 million from the sale. These shares were sold as a result of exercising options immediately prior to the sale.

You can view the list of recent insider transactions for Airbnb, Inc. here.

2. Salesforce, Inc. (CRM): $228.06

Shares of this cloud software company were sold by 4 insiders:

• Chair and CEO Marc Benioff sold 75,000 shares for $230.13, generating $17.26 million from the sale.
• President and CFO Amy E. Weaver sold 16,275 shares for $231.01, generating $3.76 million from the sale. These shares were sold as a result of exercising options immediately prior to the sale.
• Co-Founder and CTO Parker Harris sold 3,500 shares for $226.99, generating $794,465 from the sale. These shares were sold as a result of exercising options immediately prior to the sale.
• President/Chief People Officer Brent Hyder sold 1,067 shares for $235.00, generating $250,749 from the sale.

You can view the list of recent insider transactions for Salesforce, Inc. here.

3. Morgan Stanley (MS): $94.01

Shares of Morgan Stanley were sold by 5 insiders:

• Chairman and CEO James P. Gorman sold 125,000 shares for $92.35, generating $11.54 million from the sale.
• Co-President/Head of WM Andrew M. Saperstein sold 39,254 shares for $93.09, generating $3.65 million from the sale.
• Head of Investment Management Daniel A. Simkowitz sold 37,608 shares for $93.78, generating $3.53 million from the sale.
• Deputy Chief Financial Officer Raja Akram sold 13,500 shares for $92.00, generating $1.24 million from the sale.
• Chief Risk Officer Charles Aubrey Smith sold 5,600 shares for $92.41, generating $517,520 from the sale.

You can view the list of recent insider transactions for Morgan Stanley here.

4. Winnebago Industries, Inc. (WGO): $66.57

President – Grand Design Donald Jeff Clark sold 300,000 shares of this recreation vehicles and marine products company for $67.87, generating $20.36 million from the sale.

You can view the list of recent insider transactions for Winnebago Industries, Inc. here.

5. Aehr Test Systems (AEHR): $48.34

Shares of this test systems provider for burning-in semiconductor devices were sold by 5 insiders:

• President and CEO Gayn Erickson sold 173,811 shares for $49.48, generating $8.59 million from the sale. These shares were sold indirectly by a trust.
• Director Rhea J. Posedel sold 100,000 shares for $51.85, generating $5.18 million from the sale. These shares were sold indirectly by a trust.
• Exec. VP Sales and Marketing Vernon Rogers sold 40,013 shares for $50.24, generating $2.01 million from the sale.
• VP of Finance and CFO Kenneth B. Spink sold 36,511 shares for $51.39, generating $1.88 million from the sale. These shares were sold as a result of exercising options immediately prior to the sale.
• Former CTO David S. Hendrickson sold 28,000 shares for $51.45, generating $1.44 million from the sale.

You can view the list of recent insider transactions for Aehr Test Systems here.

You can view the full list of sales from this Insider Sales page.

The list of all insider purchases and sales by management people is only available to InsideArbitrage Premium and Plus members.

Disclaimer:  I hold a long position in Lions Gate Entertainment. Please do your own due diligence before buying or selling any securities mentioned in this article. We do not warrant the completeness or accuracy of the content or data provided in this article.