Carl Icahn on verge of gaining bigger stake in Lions Gate

In a bare-knuckles maneuver that’s audacious even by Hollywood standards, corporate raider Carl Icahn is moving closer to seizing more control of Lions Gate Entertainment Corp. The stage is now set for the activist investor to launch his proxy war to win control of Lions Gate’s board.

By Wednesday evening, Icahn was on the verge of becoming the largest shareholder in the Santa Monica film and TV studio. Shortly before the 5 p.m. Pacific time expiration of his $7-a-share tender offer, Icahn had received 12.5% of Lions Gate’s outstanding shares, which would give him at least a 31% stake, according to two people familiar with the matter.

If Icahn holds 33% by June 30, a secondary period during which other stakeholders have an opportunity to also tender their shares, the investor would assume veto power over any mergers and acquisitions attempted by management.

Also, if Icahn’s stake climbs to 33%, it would trigger a change-of-control provision in the employment contracts of senior management. Although that would enable Chief Executive Jon Feltheimer and Vice Chairman Michael Burns to leave with multimillion-dollar payouts, neither is expected to walk away from the company voluntarily, a person close to the situation said.

Icahn has been publicly critical of Lions Gate’s managers, accusing them of having a flawed business strategy and enriching themselves while overspending on overhead and some movies.

Because Icahn’s holdings would exceed 20% if the offer goes through, a default is automatically triggered under the covenants of Lions Gate’s revolving credit facility, which could accelerate the repayment of the company’s $476 million in debt. Lions Gate has previously stated in a regulatory filing that it was confident it would soon obtain a waiver from its bank, JPMorgan Chase & Co.

In a letter to Lions Gate shareholders this week, Feltheimer and Burns said they were confident that Icahn would not obtain control of the company. Both executives declined to comment Wednesday.

Icahn could not immediately be reached for comment.

In the coming weeks, Icahn is expected to put up a slate of directors that shareholders will vote on at their next annual meeting. In recent years that gathering has taken place in September in Toronto, where the company is based. In an interview Wednesday with Reuters, Icahn said he hoped the shareholders meeting could be held “in the very near future because a long, debilitating proxy fight could damage the company.”

Although Icahn has not yet revealed who he would nominate on the slate, he has been pushing to get his son Brett Icahn a seat, and many believe he will also include media entrepreneur and Dallas Mavericks owner Mark Cuban, who this week tendered to him his 5.4% stake in Lions Gate.

One thing is certain, Icahn and Lions Gate are headed for an ugly proxy fight.

claudia.eller@latimes.com