Carl Icahn's attempts to take over Lions Gate Entertainment Corp. suffered a setback Monday when his lawsuit trying to strike down a controversial stock transaction was dismissed by the British Columbia Supreme Court.
A judge in Vancouver, Canada, where Lions Gate is domiciled, said the transaction — which boosted the stake of the company's second-largest shareholder, Mark Rachesky, and diluted the stakes of Icahn and others — was legally valid.
"Although the Icahn Group complains about the dilutive effect, it says that the purpose of the transactions was to entrench the existing board, and thus thwart the Icahn Group at its proxy battle at the next annual general meeting," Justice John Savage wrote. "In my opinion the evidence simply does not support this assertion."
The decision means that Icahn's stake in Lions Gate remains at 33.5% instead of reverting to the 38% where it stood before the transaction. That will make it more difficult for the billionaire investor, who has a tender offer to buy all the company's stock, to acquire a controlling stake. The offer expires Nov. 12.
Icahn has also said he plans to launch a proxy war to replace Lions Gate's board of directors and senior management at the company's annual shareholders meeting, expected to be held next month.
In the July transaction, Lions Gate swapped $100 million of debt that Rachesky had acquired for 16.2 million new shares of stock. That increased Rachesky's position in the film and television studio to 29% from just less than 20%.
The studio said the deal was primarily designed to reduce its debt load; Icahn said it was an illegal attempt to thwart his takeover attempt.
Savage also ordered Icahn to pay Lions Gate's legal fees.
Icahn has another pending lawsuit against Lions Gate that resulted from the Rachesky transaction pending in the New York State Supreme Court. Meanwhile, Lions Gate filed a new suit against Icahn last week, alleging that he misled shareholders in regard to his intentions about Metro-Goldwyn-Mayer.
Icahn has been trying to orchestrate a merger between Lions Gate and MGM, in which he is a major debt owner. But MGM creditors voted Friday to pursue a different path: They approved a bankruptcy plan that would see the chief executives of Spyglass Entertainment take control of MGM.
A person familiar with the matter said Icahn still hoped a merger with Lions Gate would be possible.
Icahn could not be reached for comment.