TORONTO (CP) _ The already shaky units of Movie Distribution Income Fund tumbled more than 17 per cent Monday as a dispute deepened over whether a former executive is free to set up a rival distributor.
Alan Lenczner, a lawyer with Lenczner Slaght Royce Smith Griffin LLP, who represents former chairman Victor Loewy said his client has waived his severance pay and ended a contract that would have kept him tied to subsidiary Motion Picture Distribution.
He argues that Loewy is no longer locked into a confidentiality, non-solicitation and non-competition agreement, fanning speculation that Loewy is planning to create his own distribution company that will go head-to-head with his former employer.
But Jennifer Bell, a spokeswoman for the fund’s majority stockholder Alliance Atlantis Communications Inc. (TSX:AAC.B), said that is unlikely to happen anytime soon: "Mr. Loewy clearly resigned, he is subject to a one-year, non-compete provision in the event of a resignation and no severance is payable upon resignation."
Still, the news is troubling for Motion Picture, which late last week saw major client New Line Cinema Corp. extend the deadline of its decision to exit a contract with the Canadian-based distributor by an extra month.
Loewy was a key player in the courting of New Line to the company, and has maintained strong ties with the U.S. distributor of such blockbusters as the Lord of the Rings film series.
A spokesman for Loewy refused to comment Monday on whether Loewy was planning to form a distributor or if he was in talks with New Line, but said a statement will be issued later this week.
Motion Picture, owned 51 per cent by Alliance Atlantis and 49 per cent by the Movie Distribution Income Fund, also recently became a buyout target by U.K.-based Marwyn Investment Management LLP. It planned to offer about $400 million for Motion Picture.
On Monday, units of Movie Distribution Income Fund closed down $1.28 to $6.14 on the Toronto Stock Exchange after steep falls over the past two months.
Those drops began after CEO Patrice Theroux and general counsel Paul Laberge were fired in July for allegedly engaging in activities "contrary to their contractual and fiduciary duties," according to a release by Motion Picture.
The company also alleged the pair were "wilfully deceiving and withholding material information from the board, advancing business activities for personal gain and misusing confidential information and company financial and other resources for personal gain." Soon after, Loewy resigned from the company.
Lawyer Lenczner represents all three former executives.
After last week’s troubling developments, Motion Picture was met Monday with weak North American box-office receipts for its highly-anticipated Snakes on a Plane, a film the company hoped would be a smash success.
Raymond James analyst Andy Nasr said that third-quarter results are likely to pale compared to last year mostly because the film The Wedding Crashers took last summer’s box-office by storm and sent the company’s quarter up higher than anticipated. That, coupled with negative investor reaction over the past two months, could send the price of the company down.
"It just seems like the likelihood of getting (Movie Distribution) sold at $10 or $10.50 is diminishing," he said.
Analyst Ben Mogil of Westwind Partners Inc. said in a research note that conflicts between the former executives and the company will only complicate matters.
"The hardening of positions by both parties will likely make an imminent sale of (the company) nearly impossible," Mogil said.
"We are of the view that similar to Marwyn, other potential bidders will only pay a price in excess of the current unit price with the former management team’s involvement."