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Icahn takes Lions Gate to court in two countries

July 26, 2010 | 11:16 am

The battle for movie and television production company Lions Gate Entertainment is headed to court.

Investor Carl Icahn, who has launched a hostile takeover for Lions Gate, has followed through on his threat to sue the company over its recent issuance of stock, which was done as a defensive maneuver to try to  prevent Icahn from taking over the company.

Last week, after Icahn launched a new tender offer for all the company's outstanding stock for $6.50 per-share, Lions Gate issued 16.2 million new shares of stock to a fund controlled by its second-largest shareholder, Mark Rachesky, in a debt-for-equity deal.

The deal reduced Icahn's stake in the studio from 38% to a little more than 33%, making it harder for him to seize control of Santa Monica-headquartered Lions Gate. Rachesky, a Lions Gate board member, is aligned with the studio's current management, including top executives Jon Feltheimer and Michael Burns.

Icahn said Monday that he filed a petition in the Supreme Court of British Columbia, where the studio is legally domiciled, requesting that the debt-for-equity exchange and stock issuance be rescinded.

He also filed a lawsuit in New York State Supreme Court against Lions Gate, its board, Rachesky, his investment fund, and investor John Kornitzer, who sold the debt to Rachesky that was then converted to stock. The suit requests an injunction rescinding the exchange and stock issuance and prohibiting the defendants from voting their shares in the upcoming board of directors election, where Icahn plans to run his own slate. Lions Gate has not set a date for the shareholders meeting where an election would take place, though it's expected no earlier than October.

The suit also asks for punitive and compensatory damages.

In a series of harshly worded statements accompanying the lawsuit announcement, Icahn decried Lions Gate's defensive move, which diluted every shareholder except for Rachesky.

"Unlike many other shareholders, whom the Lions Gate directors seem to cynically assume must either suffer the board's rapacious tactics in silence or sell their shares, I am fortunate enough to have significant resources with which to protect my interests and I will spare no expense in holding the culpable parties responsible for their behavior," he said.

A Lions Gate spokesman declined to comment, as did a spokeswoman for Rachesky. Kornitzer could not be reached.

Lions Gate stock on Monday was trading at $6.90, more than the $6.50 that Icahn is offering in his tender.

-- Ben Fritz and Claudia Eller


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