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Icahn lawsuit over Lions Gate stock is thrown out, hampering his takeover effort

November 1, 2010 | 12:00 pm

Carl Icahn's attempts to take over Lions Gate Entertainment suffered a setback Monday morning when his lawsuit attempting to strike down a controversial stock transaction was dismissed by the British Columbia Supreme Court.

A judge in Vancouver, Canada, where Lions Gate is domiciled, said the transaction -- which boosted the stake of the company's second-largest shareholder, Mark Rachesky. and diluted the stakes of Icahn and others -- was legally valid.

"Although the Icahn Group complains about the dilutive effect, it says that the purpose of the transactions was to entrench the existing Board, and thus thwart the Icahn Group at its proxy battle at the next annual general meeting," Justice John Savage wrote. "In my opinion the evidence simply does not support this assertion."

The decision means that Icahn's stake in Lions Gate remains at 33.5% instead of reverting to the 38% where it stood before the transaction. That will make it more difficult for Icahn, who has a tender offer to buy all the company's stock, to acquire a controlling stake. The offer expires Nov. 12.

Icahn has also said he plans to launch a proxy war to replace Lions Gate's board of directors and senior management.

In the July transaction, Lions Gate swapped $100 million worth of debt that Rachesky had acquired for 16.2 million new shares of stock. That increased Rachesky's position in the film and television studio to 29%, from just less than 20%.

The studio said the deal was primarily designed to reduce its debt load; Icahn said it was an illegal attempt to thwart his takeover attempt.

Savage also ordered that Icahn must pay Lions Gate's legal fees.

Icahn has another pending lawsuit against Lions Gate that resulted from the Rachesky transaction pending in the New York State Supreme Court. Meanwhile. Lions Gate filed a new lawsuit against Icahn last week, claiming he misled shareholders.

Icahn has been trying to orchestrate a merger between Lions Gate and Metro-Goldwyn-Mayer, in which he is a major debt owner. However, on Friday, MGM creditors voted to pursue a different path: They approved a bankruptcy plan that would see the chief executives of Spyglass Entertainment take control.

As part of that deal, Icahn cut a deal with creditors that would give him him a seat on the MGM board. A person familiar with the matter said Icahn still hopes a merger with Lions Gate will be possible.

Icahn could not immediately be reached for comment.

-- Ben Fritz and Claudia Eller

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