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Icahn raises Lions Gate takeover bid to $7.50 per share

August 31, 2010 |  8:21 am

LastExorcism Demonstrating that the activist investor won't back down in the face of the film and television studio's aggressive efforts to fend off his takeover attempt, Carl Icahn today raised his tender offer for Lions Gate Entertainment to $7.50 per share.

His bid, which expires in October, had been $6.50 per share. But stock in Santa Monica-based Lions Gate, which released recent hits "The Last Exorcism" and "The Expendables," as well as June flop "Killers," has been trading at $6.34 to $6.67 this month, making it unlikely that many shareholders would sell to Icahn at the previous price. Lions Gate stock jumped 13% to $7.35 Tuesday on news of the increased offer.

In June, Icahn raised his stake in Lions Gate from 19% to 34% with a $7 per-share tender offer. He then bought shares on the open market, increasing his holdings to 38%.

Following a 10-day truce during which the two sides discussed potential business transactions for the company, such as a merger with Metro-Goldwyn-Mayer that now looks unlikely as that studio finalizes a deal for executives from Spyglass Entertainment to take over management, Icahn launched his new tender.

Lions Gate countered with a controversial transaction in which board member Mark Rachesky, its second-largest shareholder and an Icahn foe who supports current Lions Gate management, bought debt that was immediately converted to equity. The deal increased Rachesky's stake in the company from just under 20% to nearly 29% and diluted Icahn to 33.5%.

In response, Icahn has sued Lions Gate in British Columbia, where it is legally domiciled, and in New York, where he works. The investor called the Rachesky transaction "reprehensible" and asked the courts to rescind it.

As part of the increase in his takeover bid Tuesday, Icahn changed the terms so that it was now contingent on Rachesky's new shares being rescinded or converted to non-voting stock. The offer expires Oct. 22, after an Oct. 12 hearing in British Columbia at which Icahn hopes the province's Supreme Court will rule his way.

If Icahn isn't successful in court, Lions Gate could engage in another debt-for-equity swap that would make the investor's takeover attempt all but impossible.

The revised offer is also contingent on enough shares being tendered to him to increase his stake to more than 50%, a new condition.

Icahn has criticized Lions Gate management, including Chief Executive Jon Feltheimer and Vice Chairman Michael Burns, for its spending on overhead and movie production and has said he intends to replace them. He also has said that he will run his own candidates for the studio's board of directors at the next annual meeting, which is expected in November or December.

In a statement, the Lions Gate's board said it would consider Icahn's revised offer and make a recommendation to shareholders soon. In the past, the board has recommended that shareholders reject Icahn's offers of between $6 and $7 per share. 

-- Ben Fritz


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Photo: Patrick Fabian, Louis Herthum, Caleb Landry Jones and Ashley Bell in "The Last Exorcism." Credit: Patti Perrett / Lions Gate