Key Points
- Starz adopted a shareholder rights plan that dilutes ownership if any investor acquires more than 17.5 percent of the company’s stock.
- The move follows Byron Allen’s acquisition of nearly 11 percent of Starz through a transaction tied to an investment firm connected to former Treasury Secretary Steven Mnuchin.
- The “poison pill” is designed to deter a potential hostile takeover by allowing other shareholders to buy discounted shares if the ownership threshold is exceeded.
Premium television service Starz has adopted a shareholder rights plan that effectively dilutes investor ownership of the company if any person or group acquires more than 17.5 percent through common stock purchases.
The plan, commonly referred to as a “poison pill,” was implemented several days after a business associated with Byron Allen acquired nearly 11 percent of Starz through a transaction involving an investment firm connected to former U.S. Treasury Secretary Steven Mnuchin.
Allen has not made a formal offer to acquire Starz, though he has approached several media companies in the past with unsolicited bids for their operations. Some of his unsuccessful offers include deals to buy local broadcaster TEGNA (which is in the process of being sold to Nexstar Media Group), broadcast network ABC from Disney and BET Media from Paramount.
In recent months, Allen has been more of a seller than a buy, opting to divest his portfolio of local television stations in order to pay down a significant amount of debt associated with those acquisitions and that of The Weather Channel. Gray Media is in the process of acquiring 10 stations from Allen.
Acquiring media assets is merely one tactic Allen has used in his quest to become a recognizable media mogul. When companies choose not to do business with him, Allen finds ways to sue them in court. In 2015, he filed separate but related lawsuits against Charter, Comcast and AT&T after they refused to carry his small national networks on their pay TV systems. Several years later, Allen sued McDonald’s for $10 billion, arguing the fast food giant was discriminating against his channels by allocating a larger chunk of its marketing budgets to other media companies.
In media interviews, Allen has bragged that he’s never lost a lawsuit, though a judge has never ruled in his favor, either — most of his lawsuits are settled out of court. (At least one judge sided against Allen in his lawsuit against McDonald’s, initially tossing the case after finding he was likely to lose. McDonald’s and Allen settled the case while a California appeals court was weighing whether to revive the case.)
Still, perhaps out of fear that Allen will target their company with a hostile takeover or bring some kind of legal action in the future, Starz is building a moat around its business. Under the terms of its newly-enacted shareholder rights plan, if Allen or another individual or company acquires more than 17.5 percent of Starz through common stock purchases, other investors will be allowed to acquire shares in the company at a 50 percent discount.
The mechanism effectively dilutes the ownership position of the investor who triggered the threshold, making it significantly more difficult to complete a takeover without negotiating with the board. Such shareholder rights plans are commonly used by public companies to deter hostile takeovers or accumulation of large ownership stakes without prior consultation with company leadership.
The poison pill is viewed within Starz as necessary to keep Allen at arm’s length: In a regulatory filing outlining the purchase, Allen’s family business signaled that he may take an active role as a shareholder in the company. The filing indicated that Allen could communicate with other shareholders, members of Starz’s management team or its board of directors and potentially offer suggestions regarding the company’s operations, strategic direction or financial planning.
The document also stated that Allen could discuss matters including Starz’s business strategy, potential strategic transactions, financing alternatives and board composition, among other issues tied to the investment.
Mnuchin’s exit from Starz is more related to the company’s spin-out from Lionsgate last year. Mnuchin joined Lionsgate’s board earlier this year and has been viewed as concentrating more on the studio’s film and television production operations rather than the premium cable and streaming segment represented by Starz.
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- Byron Allen settles advertising lawsuit against McDonald’s
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- Allen Media reverses plan to lay off some TV meteorologists
- Allen Media laying off local TV weather forecasters
- The Weather Channel en Español to shut down
