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Lions Gate rejects Carl Icahn's hostile tender offer to raise stake to nearly 30%

March 12, 2010 | 10:21 am

Lions Gate clawed back at Carl Icahn on Friday, rejecting the shareholder's hostile tender offer to raise his stake in the movie and television studio to nearly 30%. The company's board is urging shareholders not to sell their shares to Icahn, who owns 18.9% of the studio and is offering to pay $6 per share, or up to $79 million, for as many as 13.2 million outstanding shares.

Lions Gate, in a statement, termed Icahn's offer "financially inadequate and coercive."

In a filing with the Securities and Exchange Committee, the company detailed the board's unanimous decision to reject Icahn's bid, saying it doesn't reflect the "significant value" that Lions Gate's management team, led by Chief Executive Jon Feltheimer and Vice Chairman Michael Burns, has built over the last decade. Additionally, Lions Gate said Icahn's offer is a "28.5% discount to the average price targets of Wall Street analysts for Lions Gate shares as of March 4, 2010."

Lions Gate stock was up 11 cents to $5.78 in early-morning trading. This week, an analyst with Miller Tabak reiterated a “buy” recommendation on Lions Gate’s stock, valuing shares at $8 in the short term and $12 in the long run.

A shareholder since 2005, Icahn has been steadily upping his stake since 2008 and angling for more control. He’s criticized the company's management, saying it has spent too much money on overhead, movie production and acquisitions like TV Guide Network.

The investor's latest move comes as Lions Gate is bidding for debt-ridden Metro-Goldwyn-Mayer Inc. studio -- which would probably cost more than $1.5 billion -- and has expressed interest in Walt Disney Co.'s Miramax Films. When Icahn launched his tender offer on March 1 he said it was conditioned upon the company not making any “material transaction,” including engaging in any acquisition that costs more than $200 million without the approval of at least 40% of shareholders.

Lions Gate said in the SEC filing that if Icahn is successful in raising his stake to 29.9%, he probably would give him the power to "effectively veto certain significant transactions and other matters requiring approval by a special resolution of shareholders."

Icahn has been an irritant to Lions Gate since last year when he threatened to launch a proxy fight after talks about his gaining board seats broke down. Icahn has tried again within the last month to get his son, Brett, appointed to the board and demanded the creation of three committees, including one that would weigh mergers and acquisitions, and one that would oversee investments in films and TV programs.

But Lions Gate advises against such a move, arguing that Icahn isn't qualified to meddle in its business.

"The Icahn Group has limited experience in operating a business in Lions Gate's industry," the company said. "Despite this, the Icahn Group is seeking a 'greater opportunity to participate in decisions regarding major acquisitions and other matters' ... including representation on a new investment in films and television programs capital allocation committee of the board."

The $6-per-share offer, Lions Gate contends, allows Icahn to take over the company "without having paid an appropriate control premium."

Lions Gate reiterated that Icahn's acquisition of nearly 30% could trigger a default in its credit facility with JPMorgan Chase & Co. Icahn has said such a default could be avoided either through a waiver or prepayment of the debt.

Icahn's offer is "highly conditional and creates substantial uncertainty for Lions Gate shareholders," the company concluded.

Icahn could not immediately be reached for comment.

If he succeeds, Icahn would become Lions Gate's largest shareholder, ahead of his former associate Mark Rachesky, whose New York fund owns just under 20%. Last year, Icahn tried unsuccessfully to buy up Lions Gate’s convertible bonds.

Now the question is whether Icahn will make good on his onetime promise to launch a proxy war against the studio behind the acclaimed movie release "Precious" and popular cable TV shows "Mad Men" and "Weeds."

-- Claudia Eller