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Icahn: Lionsgate Could Face Bankruptcy

11 Jun, 2010 By: Erik Gruenwedel

Carl Icahn’s hostile attempt to acquire control of Lionsgate took an ominous turn June 11 when the dissident shareholder hinted the Santa Monica, Calif.-based mini-major could face bankruptcy.

New York-based Icahn, who has a history of exerting pressure and rhetoric on companies he has a stake in, has extended until June 16 a $7 per share tender offer for all outstanding Lionsgate common shares. Analyst David Miller with Caris & Co. in Los Angeles has stated that a fair price for Lionsgate is around $9 per share.

In a scathing open letter to the board, Icahn said the combination of 4% common shares already tendered, his 19% stake and the possible commitment of shares from a prominent third party could trigger a credit default to bondholders on more than $472 million in debt.

Without securing additional funding or convincing bondholders to forgo the defaults, Icahn said Lionsgate could face “voluntary bankruptcy.” In the letter, Icahn said he believes shareholder Mark Cuban, who owns 5.4% stake in the studio, will tender his shares.

“As one of the largest — and, I believe, soon to be the largest — shareholder of Lionsgate, I am extremely concerned about this possible eventuality and I would imagine that other shareholders are similarly afraid of having their equity wiped out,” Icahn wrote.

The shareholder said he has offered a bridge facility to circumvent the defaults with no response from Lionsgate management.

“Rest assured that if our shares are devalued as a result of your inattention to this matter, we will seek to hold you personally responsible to the maximum extent permitted under applicable law,” Icahn wrote.

The shareholder reiterated his displeasure with Lionsgate shares declining 50% in value over the past five years while general and administrative costs, which include salaries and compensation, increased from $70 million in 2006 to $180 million this year — $50 million directly toward senior management, he said.

Icahn claims overspending by senior management is “the stuff of legend,” underscored by the board recently allocating an additional $16 million into a trust for senior management in the event of a change of control of the company, according to the investor.

“How has the board held this management team accountable for presiding over a period during which the company's share price has been cut in half? By lavishing them with exorbitant salaries, bonuses, options, perquisites and golden parachutes!,” Icahn wrote.

Lionsgate, in a statement, responded that it is in discussions with bondholders seeking a waiver or amendment to its credit facilities in order to prevent a default should the situation arise.

"This will resolve an issue that Mr. Icahn is trying to create," Lionsgate said, adding it has never received details of the proposed bridge financing Icahn referred to.

Lionsgate June 1 reported a net loss of $19.5 million for the fiscal year (ended March 31), compared with a net loss of $178.5 million during the prior-year period. Its shares closed down 2 cents to $6.97 per share.

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