Icahn makes tender offer to raise Lions Gate stake to just under 30%

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Activist shareholder Carl Icahn launched a hostile tender offer on Monday to raise his stake in Lions Gate Entertainment from 18.9% to just under 30%, seeking to exert more control over the independent film and television studio behind the Oscar-nominated movie ‘Precious’ and cable shows ‘Weeds’ and ‘Mad Men.’ Icahn is offering $6 a share in cash for up to 13,164,420 common shares. If the offer is successful, Icahn would become Lions Gate’s largest shareholder, ahead of Mark Rachesky, whose New York fund owns nearly 20%. Lions Gate stock closed Friday at $5.45. Since October, the stock has traded below $6 except for two days in December.

In a filing with the Securities and Exchange Commission on Monday morning, Icahn said, ‘The purpose of the offer is not to take control of the business of Lions Gate’ but instead to enable him to ‘have a greater opportunity to participate in decisions regarding major acquisitions and other matters that will affect all holders of Lions Gate shares.’

Icahn reiterated Monday what he had stated in an SEC filing a week ago Tuesday, that his offer is conditioned upon, among other things, Lions Gate not entering into ‘any material transaction outside the ordinary course of business, including any acquisition of assets over $100 million without shareholder approval.’ Icahn’s move comes as Lions Gate is bidding for the assets of Metro-Goldwyn-Mayer Inc. and is considering buying Walt Disney Co.’s specialty label Miramax Films.

In a recent interview with The Times, Icahn said, ‘I am quite concerned about them paying too much for acquiring a library like MGM or Miramax ... without giving shareholders the right to vote on it.’ He said if he were to own close to 30% of the company, ‘my view would get more respect, hopefully.’

That said, one day after Icahn expressed those concerns, Lions Gate filed a registration with the SEC to raise up to $750 million, presumably for a potential acquisition. The filing was not, however, in response to Icahn’s move, said people familiar with the matter.

Early Monday, Lions Gate said it had received Icahn’s unsolicited offer and the company’s board of directors would review the tender and make its recommendation ‘promptly.’ Icahn’s offer expires at the end of the day April, 6, 2010, unless the time period is extended.

If any investor’s stake exceeds 20%, it could trigger a default on Lions Gate’s credit facility with JP Morgan Chase, enabling the company’s lender to demand accelerated payment. Icahn’s offer could force Lions Gate to either pay down the debt or get a waiver.

If Icahn’s bid to raise his stake to 29.9% is successful, it would fall just short of the threshold that would prompt a costly payout to Lions Gate’s senior executives, including Chief Executive Jon Feltheimer and Vice Chairman Michael Burns.

An investor in Lions Gate since 2005, Icahn has steadily been increasing his stake in the studio over the last year, angling for more veto power over management decisions.

He’s been highly critical of the management for what he views as excessive spending on movies and overhead and for the $250-million acquisition of TV Guide Network last year. Lions Gate subsequently sold a 49% interest in the cable channel for $125 million and is attempting to establish the network as an entertainment brand by buying off-network rights to such shows as ‘Ugly Betty’ and ‘Curb Your Enthusiasm.’

Icahn also has lobbied heavily for board seats, including one for his son Brett. Last year, he threatened to wage a proxy war to take control of the board after his request for four seats was rejected. Rachesky, who worked as a top investment strategist for Icahn from 1990 to 1996, became a director last year.

-- Claudia Eller