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Icahn ends battle with Lions Gate, agrees to sell stake

August 30, 2011 |  2:05 pm

photo: Carl Icahn. Credit: Mark Lennihan / Associated Press. Activist investor Carl Icahn has agreed to sell all of his holdings in Lions Gate Entertainment, ending his bitter, three-year-long battle to take over the film and television studio and oust its management.

The Santa Monica company best known for Tyler Perry pictures, "Mad Men" and the upcoming "Hunger Games" announced Tuesday that it has reached a settlement with Icahn and his son Brett, who works in the billionaire corporate raider's New York investment firm. The Icahns will sell 44.2 million shares, representing virtually all of their 33.2% stake in the company. In exchange, both parties are dropping all of their outstanding litigation against each other.

The agreement marks a significant victory for Lions Gate chief executive Jon Feltheimer and Vice Chairman Michael Burns, who have been fending off Icahn's attempts to gain control of the company and replace them since 2008.

The company's largest shareholder has frequently criticized their spending on films and overhead and unsuccessful attempts to acquire or merge with other studios.

A person familiar with Icahn's thinking who was not authorized to speak publicly said the investor concluded that with the stock trading at more than $7 per share, it would be too costly to continue increasing his stake in an attempt to gain control of Lions Gate. In the past, Icahn has offered as much at $7.50 per share to buy out all of the company's outstanding stock in an unsuccessful series of bids to take control.FeltBurns

Lions Gate's stock closed Tuesday at $7.52 -- 7% more than Icahn has agreed to accept. However, it would be impossible for Icahn to sell his huge holdings on the public market at the stock's current trading price.

At Lions Gate's annual meeting last year, Icahn ran a slate of five board of director nominees to represent his interests and opposed those of management. None of his nominees was elected. In recent weeks the investor has bought more Lions Gate stock, raising speculation that he could cause more trouble at the company's upcoming annual meeting on Sept. 13.

Under the agreement filed with the Securities and Exchange Commission on Tuesday, Icahn agreed to abstain from voting his shares for board nominees at the meeting.

Mark Rachesky, Lions Gate's second-largest shareholder with a 29% stake, has agreed to acquire 11 million shares. That will bring his holdings up to 37%, making him the company's largest shareholder.

Lions Gate itself will acquire the same number of shares.

The company has 35 business days to find a buyer for Icahn's remaining 22.1 million shares. Its other large shareholders, including Gordon Crawford and John Kornitzer, are likely candidates.

Meanwhile, Lions Gate will drop a pending lawsuit against Icahn in New York, while Icahn will not pursue further appeals in lawsuits he has lost against the studio in New York and British Columbia, Canada.

Icahn will retain 1.2 million shares in Lions Gate for tax purposes.

RELATED:

Icahn boosts MGM and Lions Gate stakes as he presses for merger

Lions Gate revenue shrinks, profit rises with only one film release

Lions Gate CEO's compensation booms thanks to Icahn

-- Ben Fritz

Top photo: Carl Icahn. Credit: Mark Lennihan / Associated Press. Bottom photo: Lions Gate Chief Executive Jon Feltheimer, left, and Vice Chairman Michael Burns at the company's annual meeting in December 2010. Credit: Anne Cusack / Los Angeles Times.

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