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New Lions Gate stock goes to Rachesky in move to counter Icahn

July 21, 2010 |  7:01 am

Lions Gate has boosted the holdings of its second-largest shareholder in order to fend off a takeover attempt by its largest.

Mark Rachesky, who previously owned nearly 20% of Lions Gate stock and has supported the Santa Monica film and television studio's management in its fight against activist investor Carl Icahn, disclosed late Tuesday that he is the recipient of 16.2 million new shares of stock issued as part of a debt-to-equity transaction that the company announced earlier in the day.

Under the complex deal, an investment fund affiliated with Rachesky's MHR Fund Management acquired Lions Gate senior notes due in 2026 and 2027 from their owner, Kornitzer Capital Management, for $105.7 million. MHR then converted the debt into 16.2 million shares of Lions Gate stock at a conversion price of $6.20 per share.

Kornitzer also owns a small amount of Lions Gate stock and has been loyal to management.

The deal substantially raised the percentage of Lions Gate stock owned by Racheksy, who sits on the company's board of directors, to nearly 29%, from just under 20%. It simultaneously diluted the stakes of other shareholders, including Icahn, whose stake fell from 38% to a little more than 33%. In a statement, MHR said the shares were "an attractive investment opportunity."

They could also represent a lifeline for Lions Gate management, boosting a friendly shareholder while helping to harm Icahn, who on Tuesday morning launched his second tender offer to buy up all of the company's outstanding stock, this time for $6.50 per share. Icahn has said that if he takes control of Lions Gate, he will replace the current management team and cut costs, focusing the studio's film efforts on distribution and not new productions. He has also said he will run a slate of nominees to take over Lions Gate's board of directors.

-- Ben Fritz


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