Starz Stockholder Sues John Malone Over $4.4B Sale to Lionsgate

John Malone - Getty - H 2016
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John Malone - Getty - H 2016

Lionsgate's $4.4 billion acquisition of Starz is at the center of the latest suit sparked by an unhappy Hollywood stockholder, according to a complaint filed in Delaware Chancery court.  

Hollywood mergers are on the upswing, and law firms are unapologetically circling the deals looking for stockholders who are displeased enough with their cut to pursue legal action. It took less than two months after the DreamWorks-Comcast merger was announced for someone to sue, claiming Jeffrey Katzenberg took a lucrative side deal to the detriment of shareholders.

Now "billionaire media titan" and Liberty Global chairman John Malone is the target. 

Barbara Freedman, a Starz Series A stockholder, has filed a class action complaint against the mogul, Starz, its board of directors and Lionsgate for breach of fiduciary duty and/or aiding and abetting breaches of fiduciary duty.

She claims Malone orchestrated the sale while standing on both sides of the transaction, citing as proof that Starz was under the umbrella of Liberty Global Media until it was spun off in 2013 and that in February 2015, Liberty swapped 4.5 percent of Starz stock for 3.4 percent of Lionsgate and Malone joined the latter's board of directors.

It's then, Freedman claims, investors began to speculate that a bigger deal was imminent — bolstered by Starz CEO Chris Albrecht referring to the companies as "kissing cousins."

"With the Proposed Transaction, the family patriarch — Malone — has forced a marriage between these 'kissing cousins' that gives him value for his interest in Starz at the expense of the Starz minority stockholders," states the complaint.

Under the deal, Series A shares of Starz will be converted into $18 per share in cash and 0.6784 of a share of Lionsgate Nonvoting Stock. Series B shares, most of which are owned by Malone, will be converted into $7.26 per share in cash, 0.6321 shares of Nonvoting Stock and 0.6321 shares of voting stock.

The move, Freedman claims, leaves Malone even more rich and powerful but Starz minority shareholders with "unfair value and no voice in the combined entity." 

States the complaint: "Plaintiff and other Starz Series A stockholders currently have voting rights associated with their shares However, 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."

Freedman further claims that the Starz board members who unanimously voted to approve the deal are conflicted, as they were either appointed to the board by Malone or are connected to one of his enterprises. That unanimous vote triggered an exception to the company's requirement for a supermajority approval of any merger, according to the complaint, and ensured Malone would get the 51.7 percent he needed to push the deal through.

Freedman is seeking class certification, a declaration that defendants' conduct is a breach of fiduciary duty and an order that either the proposed transaction be rescinded or the class be granted recissory damages.