Carl Icahn sees Lions Gate-MGM merger as problematic, not impossible

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Dissident shareholder Carl Icahn said he views a potential merger between Lions Gate Entertainment and Metro-Goldwyn-Mayer as very problematic given the troubles at both studios, though he stopped short of saying he would oppose a deal ‘if it made sense.’

Lions Gate, as reported, has approached the management of financially troubled MGM about merging the two studios into a single company that would be run by executives at Lions Gate. MGM’s debt holders also are weighing other options, including handing operations of the studio over to Spyglass Entertainment or Summit Entertainment as part of a financial restructuring.

Icahn, who is now the largest shareholder in Lions Gate and attempting to seize control of the company, said in an interview Friday that although he hasn’t been briefed on details of the merger plan, ‘you don’t cure one problem by taking on another problem.’

MGM, like many companies in Hollywood, is facing a decline in the value of its film library because of lower DVD sales, which have long propped up the movie business.

He likened Lions Gate’s desire to merge with MGM to overstretched home buyers wanting to trade up.

‘It’s analogous to a couple not being able to pay their mortgage on a little house and starting to negotiate on a big, overpriced mansion that’s rumored to be haunted,’ he said.

Lions Gate’s management has been under siege from Icahn, who says the company has ‘too much debt’ and overhead. MGM, on the brink of bankruptcy, is scrambling to restructure its $4 billion of debt and devise a plan to survive.

Lions Gate would need Icahn’s blessing to effect a merger with MGM, and would have to structure a deal in which it wouldn’t assume more debt.

Icahn said he’d be ‘very surprised, and it sounds very unlikely’ that he would agree to a Lions Gate-MGM marriage, but noted, ‘anything is possible.’

The investor, who now owns about 32% of Lions Gate and is certain to add to his holdings by Wednesday when his $7-per-share tender offer expires, gains veto power to block any merger or acquisition when his ownership stake reaches 33%.

Icahn reiterated plans to launch a proxy contest and will soon nominate a slate of directors to take control of the board.

‘We’re moving on it,’ he said.

-- Claudia Eller