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Icahn Blasts Lionsgate’s Debt-Equity Swap

26 Jul, 2010 By: Erik Gruenwedel

Carl Icahn

Activist shareholder Carl Icahn July 26 lashed out at Lionsgate regarding a complicated debt-for-equity swap the mini-major conducted earlier this month that devalued the investor’s ownership stake.

New York-based Icahn and Santa Monica, Calif.-based Lionsgate remain embroiled in a contentious tug-of-war over the investor’s hostile takeover attempt of the studio.

Icahn, who has a $6.50 per share tender offer through Aug. 25 for all outstanding Lionsgate common shares, said the deal in which about $100 million in bond debt was converted to more than 16 million common shares and sold to board member Mark Rachesky at $6.20 per share, constituted a “self-serving” attempt to delude his and other shareholders’ stakes.

Indeed, Rachesky’s ownership stake in Lionsgate increased from 20% to nearly 29%, while Icahn’s fell from nearly 38% to 33% due to the influx of common shares. Interestingly, Rachesky, who supports Lionsgate’s current board and management, once worked as a senior advisor to Icahn.

“These transactions … after recently advising all Lionsgate shareholders not to accept my previous tender offer of $7 per share because the price was allegedly ‘inadequate’, have the effect of insulating the existing directors and management from a proxy fight, as well as enriching one director at the expense of all shareholders,” Icahn said in a statement.

The investor, who wants to install his own board members, senior management and slash operating costs at Lionsgate, said he is pursuing legal action against the maneuver he characterized as an improper defensive tactic that undermines all shareholders.

Icahn said the $6.20-per-share transaction undermined the $8.85-per-share valuation declared by Lionsgate management when repelling the investor’s previous $7-per-share tender offer.

Analyst David Miller with Caris & Co. in Los Angeles has stated that he believes a fair price for Lionsgate shares is around $9.

“Unlike many other shareholders, whom the Lionsgate 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,” Icahn said.

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