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Lionsgate Sues Icahn, Alleges MGM Disception

28 Oct, 2010 By: Erik Gruenwedel

Lionsgate Oct. 28 filed a lawsuit against Carl Icahn, alleging the activist investor duped the mini-major for personal gain when he denounced earlier efforts by the studio to forge a merger with fiscally challenged studio Metro-Goldwyn-Mayer.

The suit, filed in New York District Court, claims that Icahn, through tender offers to shareholders, proxy filings and public statements, undermined efforts by Lionsgate to acquire a stake in MGM so he could quietly acquire increasing shares of the famed studio’s $4 billion in debt. The complaint names Icahn’s son, Brett, as a co-defendant.

“Now, having acquired substantial holdings in both MGM debt and Lionsgate shares, [Icahn] is aggressively promoting a merger between Lionsgate and MGM,” read the complaint.

Indeed, the investor has pledged to acquire an additional $1.6 billion of MGM’s debt if the studio’s shareholders Oct. 29 vote against a proposed pre-packaged bankruptcy plan spearheaded by minority stakeholder Spyglass Entertainment. Icahn is supporting a separate merger plan proposed by Lionsgate, which the studio says would save MGM $100 million annually in costs.

The suit claims that in March when Lionsgate and MGM were in serious discussions, Icahn publicly mocked the proposed union as “tying two one-legged men together,” and called it “delusional.” The merger talks eventually fell through. At the same time, Icahn increased his stake in Lionsgate from 19% to 33%.

“Millions of Lionsgate shares were tendered into the Icahn [tender] offer on that basis,” read the complaint. “But it was not true. Icahn was in fact privately planning to orchestrate an MGM transaction for his own benefit.”

Lionsgate seeks undisclosed monetary damages, a public correction of “material” misstatements, and rescinding all common shares acquired after March 1, 2010.

Icahn has a history of investing in troubled companies’ debt and then leveraging that stake for future control. In the months leading up to Blockbuster’s bankruptcy, Icahn quietly acquired a third of its senior debt (after dumping most of his shares in the rental company) and then helped push through the pre-packaged filing.

A representative from Icahn’s company was not immediately available for comment.


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