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Icahn: Impossible to win Lions Gate proxy vote without a win in court

December 7, 2010 |  4:15 pm

If Carl Icahn doesn't prevail in a crucial court case in New York, he has virtually no chance at getting his five nominees on the Lions Gate Entertainment board of directors next week, the dissident investor said in an interview.

"That case is critical," said Icahn, Lions Gate's largest shareholder. "If you do the numbers, it’s almost impossible for us to win the proxy vote unless we win this court case."

Icahn has sued Lions Gate in New York State Supreme Court in an effort to unwind a controversial debt-for-equity transaction the film and television studio undertook this summer. The deal increased the stake of Mark Rachesky, the company's second-largest shareholder, to 29% from just under 20%, and diluted Icahn's stake to 32.8% from 38%.

With their current stakes, Rachesky and other supporters of Lions Gate's top management own more than 40% of the company's stock, making it all but impossible for Icahn's board nominees to prevail. However, Icahn has asked the New York court to issue an injunction preventing Rachesky from voting with his new shares. That would significantly increase the amount of voting shares controlled by the billionnaire corporate raider, who has been attempting to oust Lions Gate's senior management and force the company to cut costs for more than a year.

A decision in that case is expected this week. Last month, Icahn lost a similar lawsuit in British Columbia, where Lions Gate is legally domiciled.

Icahn also has a $7.50 per share tender offer to acquire more Lions Gate stock that expires Friday. It only takes effect if the New York court rules his way. However, he won't be able to vote any shares he might pick up in that tender, because only shares owned as of Nov. 12 are effective at Lions Gate's annual shareholders meeting this coming Tuesday.

Icahn has previously said he would use a proxy battle to take over Lions Gate and replace senior management. However, he ended up naming five nominees, including former Overture Films Chief Executive Chris McGurk. That's not enough to seize control of the studio.

In addition, while Ichan is seeking to remove Vice Chairman Michael Burns, Lions Gate's No. 2 executive, from the board, he isn't looking to replace Chief Executive Jon Feltheimer on the board.

"It's much easier to get five nominees approved," Icahn said by way of explanation. "Even with a large minority you can do a lot to change policy at a company."

The investor reiterated that he wants Lions Gate to cut costs, particularly on film production, pointing to such expensive box-office disappointments as "Killers" and "The Next Three Days." The studio's most profitable releases this year, including "The Expendables" and "The Last Exorcism," were acquisitions.

"The company needs to stop the profligate spending on movies, and I think a strong minority board can hold it accountable to do that," he said.

Lions Gate and Icahn have both issued a number of letters and presentations in the last two weeks fighting over whether the studio's overhead and film spending are too high and how its stock performance compares to other entertainment and media companies.

It was widely expected that Icahn would nominate his 31-year-old son Brett, who has been actively involved in his father's investment in Lions Gate, to his list of nominees. One person close to the matter said Icahn concluded that Brett, who works at his father's New York investment firm and serves on several boards for him but has no experience in the entertainment business, was unlikely to attract votes or the endorsement of advisory services.

However, Icahn had a more flippant explanation:

"When you look at guys like Burns and Feltheimer –- I like them personally, but after what they pulled with Rachesky I don’t necessarily want my son out there working with them, especially at his tender age."

A Lions Gate spokesman declined to comment.


Icahn extends Lions Gate tender offer for fifth time, hopes New York court will rule in his favor

Carl Icahn names five-person dissident slate for Lions Gate board

-- Ben Fritz

Photo: Carl Icahn. Credit: Rick Maiman / Bloomberg.