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Lions Gate and Icahn in settlement talks

May 14, 2010 | 10:40 am

As the stakes continue to mount in their war for control of the company, executives at Lions Gate Entertainment have been in talks with representatives of activist investor Carl Icahn about a potential settlement, people familiar with the situation said.

However, people close to the discussions emphasized that there is no specific proposal on the table at this time and no indication that an agreement will be reached soon, if at all.

If the two sides begin to discuss a specific proposal, Lions Gate would be required to disclose details about it to the Securities and Exchange Commission, which it has not done.

Icahn previously has expressed a desire to have representation on Lions Gate's board of directors, as well as some ability to address his frequently stated concern that the company's costs are too high.

Icahn's $7 per share hostile bid to take over the Santa Monica-based film and television studio expires next Friday, May 21. One person close to the talks said it is unlikely that any deal would be struck before that current offer closes.

Though few shareholders offered to sell shares to Icahn before two earlier expiration dates were extended, the investor has made clear he doesn't intend to go away without achieving some representation on the board of directors and possibly other concessions from the company.

Before Icahn launched his tender off this winter, he had proposed to Lions Gate that a designee, said by people familiar with the situation to be his son, Brett, should join the board and sit on two new committees, one to reduce overhead spending and the other to evaluate expenditures on film and TV production.

Lions Gate executives and board members did not agree to that proposal and have regularly disputed Icahn's claims that the company has underperformed financially.

There are numerous complications to any settlement arrangement.

Lions Gate's largest shareholder, Mark Rachesky, a former associate of Icahn's who sits on the company's board, owns almost 20% of the company's stock and quite possibly wouldn't accept someone who owns fewer shares having more power (Icahn owns just under 19%).

In addition, because Lions Gate is legally domiciled in Canada, it is required by law that the majority of its board members be from that country. The board is currently composed of eight Canadians and four U.S. citizens, including Lions Gate Chief Executive Jon Feltheimer and Vice Chairman Michael Burns. Icahn has said that if he wins control, he would oust management.

However, there may be a purely financial incentive for Lions Gate, which distributes the popular Tyler Perry films and the Emmy-winning television series "Mad Men," to reach some type of deal with Icahn. The company has already spent several million dollars fighting him, a person familiar with the situation said, including on a proposed poison pill approved by shareholders but voided by the Canadian government that would have made it all but impossible for Icahn to take control.

If Icahn continues to fight for more control, including potentially raising his per-share bid or even waging a proxy war to elect a new board of sympathetic directors, the studio's expenses would continue to mount.

Both camps have been engaged in an acrimonious public relations war, however, and have given little indication of reaching common ground on which they could rest a settlement anytime soon.

-- Ben Fritz and Claudia Eller

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