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Icahn back at war with Lions Gate, launches new hostile takeover offer [updated]

July 20, 2010 |  8:03 am

[Update, 3 p.m.: Lions Gate responded to Icahn's new tender offer on Tuesday afternoon by converting $100 million of its debt to equity at a price of $6.20 per share.

The move creates 16.2 million new shares of Lions Gate stock and dilutes Icahn's stake in the company to a little more than 33% from 38%. The activist investor now needs to acquire more shares in order to take over Lions Gate.

However, the action also dilutes other Lions Gate shareholders, including those who have been supportive of management.

Icahn could not be reached for comment on this latest development.]

Peace didn't last long. Activist investor Carl Icahn has launched a new hostile takeover offer for film and television studio Lions Gate Entertainment at $6.50 per share, ending a 10-day d├ętente in which the two sides ceased hostilities to discuss merger and acquisition opportunities for the company.

Icahn is already Santa Monica-based Lions Gate's largest stockholder, with 38% of the company, due to shares accumulated in a previous $7-per-share tender, which expired June 30.

His new offer positions him to potentially seize control of the company, which has seen its stock price drop to close to $6 since Icahn's bid expired. In morning trading, the stock rose to $6.46 on news of Icahn's latest bid.

Investors also have seemed wary of news that Lions Gate is in talks about a potential merger with troubled film studio Metro-Goldwyn-Mayer. Icahn was kept informed of such discussions during the 10-day truce and apparently decided he did not want to support such a move by the company's management.

Lions Gate would not be able to merge with MGM or make any other major strategic transactions without the support of its largest shareholder.

In a statement that accompanied the new tender, Icahn's investment firm said, "While certain discussions regarding acquisition opportunities might continue in the future, the Icahn Group determined that there were no immediate opportunities that would merit extension of the 10-day standstill period."

Icahn, a longtime critic of Lions Gate Chief Executive Jon Feltheimer and Vice Chairman Michael Burns for corporate spending that he claims is too high, also has renewed his call to wage a proxy war and take over the studio's board of directors. "The Icahn Group intends to seek to replace all or the lion's share of Lions Gate's board of directors with the Icahn Group's nominees," the statement said.

Icahn said his bid was contingent on Lions Gate not entering into any material transactions, such as a deal with MGM, and an end to the company's recently adopted "poison pill," which would block him from accumulating more shares. The investor successfully persuaded regulators in Canada, where Lions Gate is legally domiciled, to strike down a previous poison pill adopted by the company.

In a statement, the Lions Gate's board said that, consistent with its fiduciary duty, it would review Icahn's new offer and soon make a recommendation to shareholders. Given that it previously rejected Icahn's $7-per-share offer as fnancially inadequate, it's likely the board will do the same with his new tender, which expires Aug. 25.

[Update, 5:49 p.m.: For more, see the story on the latest in the Lions Gate - Icahn feud in tomorrow's Times.]

-- Ben Fritz and Claudia Eller


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