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Icahn vows proxy fight for Lions Gate Entertainment

The activist investor, critical of the film and TV studio's management, extends his $7-a-share offer in a bid that could get him as much as a $50% stake.

June 02, 2010|By Claudia Eller and Ben Fritz, Los Angeles Times

Delivering on his threat to seize control of Lions Gate Entertainment Corp., Carl Icahn said Tuesday that he would launch a proxy war against the Santa Monica film and television studio.

The activist investor, currently the company's second-largest shareholder, has been waging a public battle against Lions Gate's management for more than a year.

On Tuesday, he extended his $7-a-share bid for the third time, to June 16, and dropped the requirement that a minimum number of shares must be tendered for his offer to take effect.

Whereas Icahn's bid was previously contingent upon him being able to raise his stake from just under 19% to more than 50%, he now could end up owning 20% to 50% of the company's stock, which would give him significant clout without full ownership.

If his stake increases to more than 20%, Lions Gate would default on the terms of a revolving credit facility of $340 million. The company would then need either to get a waiver or to raise new money to pay back that debt.

With more than 30% of the company, Icahn could block any acquisitions, making it difficult for Lions Gate to make major strategic moves. At 33%, senior management including Chief Executive Jon Feltheimer and Vice Chairman Michael Burns could exit with multimillion-dollar golden parachutes. Last month, the company set aside $16 million for that eventuality.

Icahn recently added that action to his list of criticisms, which most prominently includes claims that management has spent too much on overhead for a company of Lions Gate's size.

"Why hasn't the board held management accountable for this and other mistakes?" he said in an interview. "Instead, they have chosen to reward management by setting up a $16-million trust for severance payments. We have lost confidence in the management and the board and therefore plan to have a proxy fight."

A Lions Gate spokesman declined to respond to Icahn's remarks. However, the company, which has spent $6 million fighting Icahn, put out a statement noting that only 4% of shareholders took advantage of Icahn's offer under the previous conditions.

"Lions Gate's shareholders have demonstrated that they believe the Icahn Group's offer is financially inadequate," the company said.

A proxy vote would be held at Lions Gate's annual meeting, which has for the last few years occurred every September in Toronto. Icahn said that before the meeting he would put up his own slate, including his son Brett, to run against the one nominated by the company.

Icahn's latest actions came the same day that Lions Gate released financial results for the fiscal year that ended March 31, during which revenue rose 8% to $1.58 billion and its net loss narrowed 89% to $19.5 million from a year earlier.

The improved performance was driven by its television business, which for the first time included results from the TV Guide cable channel, as well as its home entertainment library.

However, Lions Gate's motion picture revenue fell 9%, as it released fewer movies and had several flops such as "Saw VI" and "From Paris With Love."

During the fiscal year, Lions Gate's overhead spending declined 4% to $117.6 million.

This Friday the company, which has traditionally focused on low-cost genre pictures, will release its most expensive movie ever, the action comedy "Killers," starring Ashton Kutcher and Katherine Heigl. Icahn has criticized the movie's $75-million production cost, though the studio has recouped about half the expense in foreign pre-sales.

Icahn and Lions Gate are not currently involved in talks to end his takeover efforts. Discussions last month fell apart over how much power Icahn's board appointees would have relative to his holdings.

Lions Gate shares rose three cents to $6.83.

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