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Business

‘Gate slams on Icahn

By
Peter Lauria
Published March 13, 2010, 5:00 a.m. ET

Carl Icahn running a movie studio — oh, the horror!

That is essentially what Lionsgate, home to torture porn movies like “Saw” as well as Academy Award winners “Precious” and “The Cove,” told shareholders yesterday in recommending that they reject Icahn’s unsolicited tender offer.

The billionaire investor-agitator earlier this month said he wanted to buy another 13 million Lionsgate shares, and was willing to pay $6 cash per share. That would give him a blocking position on matters that need shareholder approval by increasing his stake in the movie studio from nearly 19 percent to just under 30 percent.

“To the knowledge of Lionsgate, the Icahn Group has limited experience in operating a business in Lionsgate’s industry,” reads one of seven points the studio made in a regulatory filing to support its rebuff.

Lionsgate called his offer “inherently coercive to shareholders.”

The company also noted that despite being a movie-industry novice, Icahn wants to have a bigger say in matters like entertainment acquisitions, by forming and serving on a new “investment in films and television programs” capital allocation committee of the board.

Icahn, who failed in an attempt to gain seats on Lionsgate’s board last year, was a vocal critic of the studio’s purchase of the TV Guide Network and the formation of the Epix pay-television channel. He said he made his offer in part to have a say in the deals Lionsgate is contemplating making for movie studios Miramax and Metro-Goldwyn-Mayer.

Brushing off Icahn’s criticism, Lionsgate CEO Jon Feltheimer said, “We have built the company piece by piece over the past 10 years through a patient, consistent and disciplined approach to both internal growth and external acquisitions.”

A source familiar with the matter said Lionsgate is still pursuing both MGM and Miramax and currently favors a potential deal with MGM.

Lionsgate also said that Icahn’s offer is “financially inadequate” and lacks a premium for taking such a large stake, noting that the $6 per share price is 28.5 percent below the average price target for Lionsgate shares among Wall Street analysts.

Other reasons the studio cited for rejecting Icahn’s offer include its highly conditional nature, plus the fact that letting him acquire such a big stake could constitute a credit default under its agreements with lenders. Lionsgate’s debt pile stands at around $517 million.

To combat this and future attempts to take over the studio, Lionsgate wants to enact a “poison pill” plan that would kick in when an investor accumulates a position of more than 20 percent.

The investor’s shares would begin to decrease in value while the stock of the studio’s other shareholders would remain the same.

Icahn’s confrontation with Lionsgate puts him in direct conflict with his former adviser Mark Rachesky, who holds a roughly 20 percent stake in the studio.

Rachesky and Icahn began building their positions in Lionsgate around the same time, and many thought they were mounting a takeover.

But, at least for now, Rachesky seems to be aligned with Lionsgate management and has outflanked his former boss– last year Rachesky got seats on the Lionsgate board, not Icahn.

Lionsgate shares closed at $5.77 yesterday, up 10 cents or 1.76 percent.