Carl Icahn, who has a history of feuding with Lions Gate management, intends… (Jeremy Bales / Bloomberg…)
After 18 months of stalking Lions Gate Entertainment Corp., Carl Icahn is making clear he wants to call the shots.
The activist shareholder said Tuesday that he would make a hostile bid to increase his stake in the film and TV studio behind the Oscar-nominated movie "Precious" and the acclaimed cable TV show "Mad Men" to 29.9%, just short of a threshold that would trigger a costly payout to the company's top executives.
The move returns Icahn to the fore at Lions Gate, with which he tangled last year over acquisition decisions. His surprise tender offer comes just as Lions Gate has made a bid for struggling Metro-Goldwyn-Mayer Inc. and has signaled interest in buying Walt Disney Co.'s Miramax Films, both of which are for sale.
"I'm quite concerned about them paying too much for acquiring a library like MGM or Miramax, especially in light of the precipitous decline in the value of libraries," Icahn said in an interview. "We don't want to see a roll of the dice with shareholder money without giving shareholders the right to vote on it. . . . I feel with 30% my view would get more respect, hopefully."
Icahn, who currently owns 18.9% of Lions Gate, is offering $6 a share, a 9% premium over the company's closing price Tuesday of $5.48. If Icahn's tender offer is successful, he would become Lions Gate's largest shareholder, ahead of Mark Rachesky, whose New York-based investment fund owns nearly 20%.
In a prepared statement, Icahn said his offer "will be conditioned on Lions Gate not entering into any material transaction outside of the ordinary course of business, including the acquisition of assets over $100 million."
David Bank, an analyst with RBC Capital Markets, said Icahn was sending a clear message to Lions Gate management.
"He wants shareholders to question whether the acquisition of Miramax or MGM would be the optimal allocation of the company's capital," Bank said.
A year ago, Icahn criticized Lions Gate's $250-million acquisition of the TV Guide cable channel. The studio subsequently sold 49% of the network for $125 million.
Icahn, a shareholder since 2005, has been a regular critic of Lions Gate's management team, led by Chief Executive Jon Feltheimer and Vice Chairman Michael Burns, decrying what he's called the company's "excessive" overhead.
Last year he threatened to wage a proxy battle to take control of the company's board after his request for four board seats -- including one for his son Brett -- was rejected.
In seeking a board seat Icahn wants to be on par with his former associate Rachesky, who worked as an investment strategist for Icahn from 1990 to 1996 and became a director last year.
Icahn, known previously for shaking up management at Time Warner Inc. and Yahoo Inc., among others, has also recently been active in video game publisher Take-Two Interactive. After he built up a stake of more than 11%, the company behind Grand Theft Auto last month agreed to give him three of its eight board seats.
Icahn is intentionally holding his stake in Lions Gate to less than 30%, people close to the situation said, because employment contracts of senior executives allow them to walk away with multimillion-dollar payments if any shareholder's stake exceeds that threshold. He is expected to file his tender offer by Friday.
Lions Gate said its board would review Icahn's proposal and make its recommendation to shareholders "promptly."
Once an investor exceeds 20% it could trigger a default in Lions Gate's $340-million senior revolving credit facility and permit the company's lender to demand accelerated repayment. Such a move would put a financial strain on Lions Gate, although it could be mitigated by a pay-down or avoided altogether through a waiver, as Icahn indicated in a statement he issued Tuesday.
Although Lions Gate has made some progress on its financial performance, the studio swung to a loss again in its most recent reporting period.
In the quarter ended Dec. 31, 2009, the studio reported a net loss of $65.3 million despite revenue growth of 15% compared with a year ago to $371.8 million. Its stock has been stuck at less than $6 since October.
Lions Gate's box-office track record has been spotty at best, with such disappointments as "Saw 6" and "Gamer."
In an earnings call with analysts last week, Feltheimer acknowledged that the studio was disappointed by the opening of its latest release, "From Paris With Love," but touted the fact that seven of its last 11 wide releases were profitable.
That group includes the dark drama "Precious," which received six Oscar nominations; "My Bloody Valentine 3D"; and Tyler Perry's "I Can Do Bad All By Myself."