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Icahn loses latest round in feud with Lions Gate

July 28, 2010 |  5:14 pm

Score one for Lions Gate.

In a hearing Wednesday, a panel of the British Columbia Securities Commission (BCSC) denied investor Carl Icahn's request for an order prohibiting Lions Gate Entertainment shareholder and board member Mark Rachesky from selling any of the stock he acquired in a recent debt-for-equity deal or buying more shares. Under Icahn's requested 15-day cease trading order, Lions Gate would have also been prevented from issuing any new shares.

Last week, Icahn sued Lions Gate in the Supreme Courts of New York and British Columbia in an effort to unwind the Santa Monica studio's recent issuance of stock to Rachesky. Lions Gate issued the shares as a defensive measure to hinder activist investor Icahn's efforts to take over the film and television studio.

A ruling by the BCSC in Icahn's favor would have aided his legal efforts by putting a freeze on any further transactions by Rachesky and Lions Gate before the courts could rule on his cases. It may now be difficult for Icahn to prevail in his effort to get the courts to rescind Rachesky's stock as he will be free to sell it to others or even purchase more. Lions Gate could also issue more stock and further dilute Icahn's holdings, which currently stand at 33.5%.

"In denying the application, the panel noted that the Court is the most efficient forum to resolve the issues," a press release issued by the BCSC said.

Last week, Lions Gate issued 16.2 million new shares to a fund controlled by Rachesky after Icahn launched a new $6.50 per share tender offer for all of Lions Gate's outstanding stock. Rachesky is Lions Gate's second largest shareholder after Icahn and has been aligned with Lions Gate management in its protracted battle with Icahn for control of the studio.

The transaction increased Rachesky's holdings to just under 29% from 20% and diluted Icahn's stake from 38% to 33.5%, making it more difficult for him to take control of the company.

The New York lawsuit was filed against Lions Gate, its board, Rachesky and investor John Kornitzer, who sold $100 million in debt to Rachesky that was converted to stock. In it, Icahn sought an injunction rescinding the transaction and stock issuance and prohibiting the defendants from voting their shares in the upcoming election of Lions Gate's directors. Icahn plans to put up his own slate of directors to be voted on at Lions Gate's yet-to-be-scheduled annual shareholders meeting.

Icahn, who could not be reached for immediate comment, had also filed a petition in the Supreme Court of British Columbia -- where Lions Gate is legally domiciled, though it operates out of Santa Monica --  requesting that the debt-for-equity exchange and stock issuance be rescinded.

--Claudia Eller and Ben Fritz