Carl Icahn now owns about 34% of Lions Gate

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[Update, 1:15 p.m.: Icahn reported Thursday afternoon that he bought 4.6 million Lions Gate shares on the open market after his tender offer closed, bringing his total stake in the company to 37.9%. The move signifies that Icahn will continue to try to gain control of the company by accumulating more stock while preparing for his proxy battle.]

With his $7-per-share final tender offer for Lions Gate Entertainment expiring last night, Carl Icahn now owns 33.9% of the Santa Monica movie and television studio that he is fighting to control. Now, the big question is whether Lions Gate management will attempt to negotiate some kind of settlement with the agitator investor before he launches a promised proxy war to take over the company and kick out current management.

Icahn has been pushing for some time to get board seats, including one for his son, Brett Icahn, and has said he soon plans to nominate a full slate of directors. In addition to son Brett, it’s likely that Icahn also will nominate Dallas Mavericks owner and media entrepreneur Mark Cuban, who recently tendered 5.3% of his shares to the investor.

With more than 33% ownership, Icahn now has veto power over any mergers or acquisitions, which is significant since Lions Gate has been in merger talks with the management of debt-ridden studio Metro-Goldwyn-Mayer.


Icahn would now have to bless such a transaction, which he recently reiterated was problematic because of the declining values of libraries and the assumption of too much debt. That said, Icahn didn’t rule out the possibility of an MGM merger ‘if it made sense.’

Also, because Icahn’s stake rose beyond 33%, it triggers a change-of-control clause in the employment contracts of Lions Gate’s senior management, including Chief Executive Jon Feltheimer and Vice Chairman Michael Burns. Those two top executives now have the option to leave the company with multimillion-dollar payouts. Both have assured the Lions Gate board, however, that they plan to stay in their jobs and fight for the company they have spent the last decade building into Hollywood’s largest independent studio.

If Icahn wants to try to increase his holdings, he could purchase additional Lions Gate shares on the open market. Although he now has ‘negative control’ of the company, he would need more than 50% ownership to take over operations. Lions Gate’s management and shareholders who have thus far been the company’s biggest allies, including Mark Rachesky, Gordon Crawford and John Kornitzer, currently control about 37% of the shares.

Lions Gate issued a statement pointing out that 66% of the company’s shareholders had ‘rejected the Icahn Group’s offer’ and noted that shareholders had ‘repeatedly confirmed their support for the board and management’s strategy to grow shareholder value by continuously rejecting the Icahn Group’s financially inadequate offer.’

Icahn could not be reached for immediate comment.

-- Claudia Eller and Ben Fritz


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