As long as Carl Icahn remains Lions Gate's largest shareholder, CEO… (Rick Maiman, Bloomberg )
The long and costly war between Hollywood's top independent studio and its largest shareholder appears to be over — at least for the moment.
In a surprising admission of defeat, corporate raider Carl Icahn said Monday that he was abandoning his effort to take over the Santa Monica studio best known for the Tyler Perry and "Saw" movies and the cable television show "Mad Men." Icahn said he had no chance of prevailing in a proxy battle to elect five nominees to the board of Lions Gate Entertainment Corp. at the company's annual meeting Tuesday.
The statement from Icahn, Lions Gate's largest shareholder, came after a New York court denied his request for a ruling that would have increased his stake in the company and made it easier for him to win Tuesday's vote. The decision also voided a tender offer Icahn had on the table to acquire the studio's outstanding stock at $7.50 a share in a bid to take control.
"We recognize that it is now virtually impossible for us to prevail in the proxy contest due to the dilutive transaction in question," he said, referring to a controversial debt-for-equity transaction enacted during the summer that increased the stake of Mark Rachesky, the company's second-largest shareholder, to 29% from just under 20%.
The move diluted Icahn's holdings to 32.8% from 38%.
Rachesky is a supporter of the current management and has opposed an effort by Icahn to elect five dissident members to the company's 12-person board to push his agenda of cutting costs and pulling back on film production to increase profit and shareholder value.
Though Icahn admitted he could not garner a majority of shares to vote his way, Lions Gate executives were still lobbying investment funds Monday in an effort to win by the largest possible margin at the upcoming meeting. If a significant number of shareholders vote alongside Icahn for his five nominees, it would still be a blow to Lions Gate Chief Executive Jon Feltheimer and Vice Chairman Michael Burns.
In his statement Monday, Icahn encouraged shareholders to vote for his director nominees to "voice their dissatisfaction." On Thursday, Institutional Shareholder Services — Wall Street's most influential advisory firm on proxy votes — endorsed three of Icahn's five nominees.
Icahn has been waging a battle for two years to take over Lions Gate and oust Feltheimer and Burns. The studio has spent more than $17 million on legal fees as the two sides have each filed lawsuits and made numerous unsuccessful attempts to reach a settlement ending their dispute in exchange for giving Icahn representation on the board.
Icahn indicated that the setback Tuesday didn't mean he was ending his crusade to shake up operations at Lions Gate.
"We will continue to monitor the situation at Lions Gate and will aggressively take all actions necessary to protect our investment," he said in his statement.
Monday's news led Lions Gate shares to close down 5% at $7.09, as some on Wall Street had been expecting Icahn to announce a new takeover strategy after last week's court ruling. A lower price for Lions Gate stock boosts Icahn's argument that the company has been underperforming.
As long as Icahn remains the company's largest shareholder, Feltheimer and Burns will continue to be under pressure to reduce costs, turn around the studio's ongoing net losses and raise the stock price.
One person close to the studio said it would continue to seek a way to settle with Icahn or allow the investor to sell his shares favorably.
As for Icahn, he is likely to continue pushing for a merger between Lions Gate and struggling Metro-Goldwyn-Mayer, in which he is also a large shareholder. Previous attempts by Icahn to bring the two studios together were unsuccessful.