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Carl Icahn's proxy roar for Lions Gate silent, at least for now

September 14, 2009 |  9:30 am

Icahn

Those who follow -- including the movie and television studio's own management -- the events at Lions Gate Entertainment might have expected "activist shareholder" Carl Icahn to wage a proxy war by now given his growling threats earlier this year.

But, with Lions Gate's annual shareholders meeting set to take place tomorrow in Toronto, Canada (where the company is incorporated though it operates out of Santa Monica), all is quiet on the Icahn front, with his alternative slate of directors never materializing. 

While it still remains unclear what is the game plan of the corporate raider regarding his investment in Lions Gate since he's never articulated it, media analysts attribute the current Icahn lull to the possibility that the company's second largest shareholder may have less to carp about these days.

"My guess is he has softened his activist stance a bit because the stock has been up since April and the company has responded to some of his complaints," says analyst David Miller, a managing

director at Caris & Co. in Los Angeles. "Lions Gate was a much leaner company going into fiscal 2010."

Back in February, following two lousy quarterly results and after having its stock battered, Icahn publicly took Lions Gate management to task for spending too much on overhead, production and marketing as well as overpaying for the acquistion of TV Guide Network. Since last year, the management team led by Jon Feltheimer and Michael Burns has cut overhead by more than $20 million -- including reducing its staff by 8% last November and another 8% this past Spring -- slashed some $200 million out of its marketing and production budgets and sold a 49% stake in TV Guide Network. While some of the slashing and burning was in the works prior to Icahn's complaints, some was direct result of his banging on the door.

It also helped that Lions Gate had its best quarterly box office results ever in the fourth quarter with such hits as "Tyler Perry's Madea Goes To Jail" and "My Bloody Valentine 3-D" and better-than-expected results in its latest earnings period ended June 30 thanks mostly to stronger TV revenue. Its theatrical revenue was off 26% largely because the studio released only one film in the quarter.

Lions Gate's recent action thriller "Gamer," which opened Sept. 4, is no runaway hit. But this past weekend, the studio scored with its latest Tyler Perry film "I Can Do Bad All By Myself," the eighth in the franchise, which debuted at number one spot with an estimated $24 million.

Icahn may also be pacified by the rebound in Lions Gate's stock, up 80% from a low of $3.65 on Feb. 11. It closed at $6.48 dollars a share on Friday.

Alan Gould, an analyst with New York's Natixis Bleichroeder Inc., says that while "it's hard to know what's going on inside Carl Icahn's head, he's done a pretty good job buying the stock on dips." He suggested that Icahn is "probably making some money on his newer stock and has lowered his average purchase price."

Icahn, who's been an investor since early 2005 and now owns 17.8% of Lions Gate's stock, has been steadily increasing his stake since last October, when he doubled his holdings to 9.2%. With just under 18%, he's right behind his former underling and investor chief Mark Rachesky, who owns 19.8%.

Unlike Rachesky, a strong supporter of management who Lions Gate recently nominated to its 12-member board, Icahn lost his bid for several board seats when talks broke down with management earlier this year.

Some analysts believe that just because Icahn didn't wind up launching a proxy contest, that doesn't mean he hasn't had an impact as an activist shareholder.

"The threat of doing something was probably more powerful than actually doing something," suggests David Bank, an analyst with RBC Capital Markets in New York. "By proposing his own slate, it seems likely he would have been defeated," said Bank. "It's more powerful to hang in the wings and foment in the background."

One thing seems certain: Icahn isn't going away.

"I imagine he's looking for something transformative [like a merger with another studio like MGM or an acquisition by a bigger media company] that would unlock shareholder value," said Bank.

-- Claudia Eller

Photo: Michael Nagle/Getty Images

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