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Lionsgate Board Rejects Icahn’s Tender Offer

12 Mar, 2010 By: Erik Gruenwedel

Characterized as “financially inadequate and coercive,” Lionsgate’s board of directors March 12 said it is recommending that shareholders of the Santa Monica, Calif.-based mini-major reject activist investor Carl Icahn and his affiliated entities offer to purchase more than 13 million common shares for $6 each.

New York-based Icahn’s $79 million offer would up his ownership stake in the studio to 30%, thereby allowing him significant clout on management, including possibly forcing expedited repayment of a credit facility and hindering Lionsgate’s ability to acquire third-party catalog, notably from Miramax and MGM.

As of March 8, $472.1 million in total principal amount of such notes were outstanding and Lionsgate had borrowings of approximately $44 million outstanding under the credit facilities.

Analysts contend Icahn’s actions are typical of his operational style, which both supports current management while at the same time turning the screws on them.

Icahn, who recently vacated his board seat with Blockbuster, purchased increased shares of Lionsgate last spring and summer while at the same time waging a fiscal public battle to exert greater influence, including an unsuccessful attempt to place his son on the board.

The board said Icahn’s tender offer is an effort to acquire control of Lionsgate on the cheap and exert influence on decisions regarding major acquisitions, including new “investment in films and television programs, among other actions, despite limited experience in the film industry.”

“In effect, the Icahn Group is seeking to acquire control of Lionsgate for a total offer price of less than $80 million,” the board said in a statement.

It said Icahn’s offer creates uncertainty among shareholders and is urging shareholders to adopt a shareholder rights plan whereby stakeholders would receive a one-share purchase right for each outstanding common share owned as of March 22.

“Lionsgate is a strong and diversified company with a focused strategy that we expect to generate far greater value for shareholders,” said Lionsgate co-chairman and CEO Jon Feltheimer, in a statement.

The studio reported a loss of $65.5 million in the third quarter (ended Dec. 31), despite the home entertainment segment delivering record revenue from its catalog.

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