Icahn raises offer for Lions Gate shares in bid for control

A good August ended on a sour note for Lions Gate Entertainment Corp.

After releasing back to back box-office hits “The Expendables” and “The Last Exorcism” and scoring a best drama Emmy for its cable television series “Mad Men” for a third consecutive year, Lions Gate was surprised Tuesday when its largest shareholder, Carl Icahn, raised his bid to take over the movie and TV studio’s outstanding shares to $7.50 a share from $6.50.

The increased offer makes it more difficult to fend off the activist investor in his aggressive fight for control of the studio.

Icahn’s revised bid, however, is contingent upon his prevailing in a lawsuit he recently filed against Lions Gate in Canada, where the company is legally based.

Icahn sued Lions Gate in July after the studio engaged in a controversial transaction with its second-largest shareholder and board member, Mark Rachesky, an Icahn foe who supports current management. Rachesky bought $105 million of debt that was immediately converted to 16.2 million shares of stock at a price of $6.20 each. The deal increased Rachesky’s stake in the company to nearly 29% from just under 20% and diluted Icahn’s to 33.5% from 39%.

The suit seeks to have Rachesky’s shares rescinded. That is crucial for Icahn to succeed in his bid to take control of the company, particularly because people familiar with the situation have confirmed that Lions Gate could engage in another such transaction if necessary to defend against the activist investor.

Tuesday’s revised offer shot Lions Gate stock up 65 cents, or 10%, to $7.14. As a result, it would be more expensive for the studio to issue more stock.

In addition, if Icahn succeeds in the British Columbia Supreme Court hearing, scheduled for Oct. 12, the $7.50 price would be more attractive to shareholders considering selling. The tender offer expires Oct. 22. Another condition of Icahn’s bid is that enough shares are tendered to give him more than 50% of the company.

Despite Lions Gate’s recent successes, Icahn has repeatedly criticized the studio’s management for its spending on overhead and film production.

In a statement accompanying the revised bid, Icahn reiterated his intention to replace senior management and run a slate of candidates for the studio’s board of directors at the next annual meeting, which has not yet been scheduled but is expected in November or December.

“The Icahn Group believes that this board will stop at almost nothing to entrench its position at the expense of shareholders,” Icahn said.

Lions Gate said in a statement that its board would consider Icahn’s revised offer and make a recommendation to shareholders soon. In the past, the board has recommended that shareholders reject Icahn’s offers of $6 to $7 a share.

Icahn did not respond to a request for comment.