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Lions Gate sues Carl Icahn for playing 'double game' with MGM merger [updated]

October 28, 2010 |  4:43 pm

Lions Gate and Carl Icahn’s tumultous relationship has grown even more complicated.

The Santa Monica-based film and television studio on Thursday filed a lawsuit against its largest shareholder in New York Federal Court alleging that he publicly opposed a merger between Lions Gate and Metro-Goldwyn-Mayer at the same time he was secretly positioning himself to financially benefit from such a transaction, in what the suit termed a "double game."

The suit claims that Icahn misled Lions Gate shareholders during tender offers to buy their stock and take over the company because he did not disclose that he was acquiring debt in MGM. Since Lions Gate first started pursuing MGM earlier this year, Icahn has repeatedly criticized such a deal, at one point calling it “delusional.”

Earlier this month, however, Icahn changed his position, supporting a new merger proposal made by Lions Gate. The studio claimed in its lawsuit that he had not been honest about his motives.

“[Icahn] wanted to postpone [a merger] until he could buy as much of both companies as he could and thus extract for himself as much of the value stemming from the merger as possible,” the lawsuit alleges.

Lions Gate’s suit came one day before votes are due on an alternative plan for MGM to merge with Spyglass Entertainment as part of a prepackaged bankruptcy. Icahn, who already owns more than 12% of MGM’s debt, has made three offers in the last week to acquire even more in order to block that deal. MGM’s creditors will decide the fate of the studio as it can no longer afford interest on its $4-billion debt.

The lawsuit is sure to raise eyebrows among some debt holders. Backers of the Spyglass proposal have argued that a Lions Gate merger is dangerous because of the long-testy relationship between the studio and Icahn.

However, it may be no accident that Lions Gate filed its suit now. A decision is expected imminently in a lawsuit that Icahn leveled against the studio asking a Canadian court to unwind a controversial transaction with another shareholder in July that reduced his stake from 38% to 33.5%.

Lions Gate may also be seeking to ensure that as his stake in MGM increases, Icahn does not request a change in the terms of the proposed merger without informing Lions Gate shareholders.

In its suit, Lions Gate asked the court to order Icahn to disclose to its shareholders what he intends to do with his growing MGM stake. The investor’s current tender offer to buy up stock and take control of the company exprires Monday.

Additionally, Lions Gate is requesting damages on the grounds that Icahn’s threat in June to sue any company that entered into a transaction with the studio killed then-ongoing merger negotiations with MGM and another film company, believed to be “Twilight” producer Summit Entertainment.

[Updated, 6:07 p.m.: In a statement, Icahn's investment firm said the new lawsuit and its claims are "completely without merit."

Icahn also extended the deadline for his current tender offer from Nov. 1 to Nov. 12.]

-- Claudia Eller and Ben Fritz

Related:

Carl Icahn launches third offer for MGM debt as Spyglass vote looms

Icahn increases pressure on MGM, launches new tender offer to take control of company

Lions Gate reveals merger proposal as MGM urges creditors to reject it

Icahn offers to buy MGM debt in gambit to push Lions Gate merger

MGM delays creditors' vote by a week, boosting Lions Gate merger proposal

Carl Icahn supports Lions Gate proposal to merge with MGM

Lions Gate makes another run at MGM

Spyglass proposes MGM reorganization plan, including prepackaged bankruptcy

Carl Icahn taking Lions Gate to court

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