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Lions Gate prevails against Icahn in court

December 9, 2010 | 12:54 pm

Score a big one for Lions Gate Entertainment and a major setback for Carl Icahn.

A New York judge denied the company's largest shareholder a preliminary injunction to block Lions Gate's second-largest shareholder, Mark Rachesky, from voting shares he received in a controversial debt-for-equity swap in July.

The verdict makes it much more difficult for Icahn to put his five nominees onto the Santa Monica film and television studio’s board of directors at its annual meeting Tuesday. Rachesky is a strong supporter of Lions Gate's current board and management, and he is expected to vote against Icahn's five candidates.

In his suit against Lions Gate, Icahn was seeking to unwind the transaction in which the company exchanged about $100 million in debt held by one of its bondholders, who the same day sold the notes at a profit to Rachesky. Rachesky, a former associate of Icahn's, converted the notes into Lions Gate shares at $6.20 a share, increasing his stake from 19% to 29%.

If Icahn had won, the judge would have issued a temporary order blocking Rachesky from voting those additional 10% of shares. That would have made it much easier for Icahn, who owns 33.8% of Lions Gate's stock, to elect his five dissident nominees, who would champion his agenda of slashing overhead and film production costs.

"The Icahn Group has not made an actual showing that it would be irreparably and inequitably harmed by the denial of the preliminary injunction," the court said in its ruling. "Control of company shares is a 'moving target," it stated, noting that Icahn had made a number of tender offers and at this time nearly one-third of the Lions Gate shares remain uncommitted.

"The balance of power in this and future proxy fights rests with the uncommitted votes," it said.

Last month, Icahn lost a similar case over the debt-for-equity swap in the Supreme Court of British Columbia in Vancouver, where Lions Gate is domiciled. 

In an interview with The Times this week, Icahn acknowledged that it would be "nearly impossible" for him to elect his nominees to the board if he did not prevail in his New York lawsuit.

The ruling came just a few hours after Icahn received good news when the influential advisory firm Institutional Shareholder Services recommended that investors elect three of his five nominees.

A spokesman for Icahn did not immediately respond to a request for comment. It wasn't clear whether the billionaire corporate raider had any remaining legal options before the meeting.

The court ruling violates a condition of Icahn's tender offer to purchase Lions Gate stock for $7.50 a share. The offer, which was set to expire Friday, is now void unless the investor changes its conditions.

Related:

Key Wall Street advisory firm endorses three Icahn picks for Lions Gate board

Icahn: Impossible to win Lions Gate proxy vote without a win in court

Carl Icahn names five-person dissident slate for Lions Gate board

-- Claudia Eller and Ben Fritz

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