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Maverick at the ’Gate

21 Oct, 2008 By: Erik Gruenwedel

Despite a mini-major reputation, Lionsgate is about to get major corporate scrutiny from renegade investor Carl Icahn, who upped his three-year-old stake in the Santa Monica, Calif.-based studio to more than 9%.

Declaring Lionsgate’s shares “undervalued,” Icahn spent more than $86 million acquiring 6.51 million shares, thereby making him the fourth largest investor, with 10.8 million shares, according to a regulatory filing.

Lionsgate's home entertainment revenue, which includes a combined 12,000 DVD, Blu-ray, video-on-demand (VOD) and electronic sellthrough titles, increased 47% in the most recent quarter to $152.2 million, from $103.8 million during the same period last year.

The studio, which isn't afraid to release controversial titles during presidential elections, including Fahrenheit 9/11, W and Religulous, is expected to top the box office Oct. 24 with the fifth installment of the lucrative Saw franchise.

Lionsgate recently closed a $350 million credit facility with J.P. Morgan.

New York-based Icahn’s most recent entertainment investments portended management shakeups (both real and thwarted) at Blockbuster Inc., Time Warner and Yahoo — the latter after it rejected a $44.6 billion acquisition bid by Microsoft.

Icahn said in the filing that his increased ownership was preceded by discussions with Lionsgate co-chairman and CEO Jon Feltheimer. Details of those discussions were not disclosed.

A studio spokesperson said the company maintained a good relationship and “open dialogue” with Icahn and other major shareholders.

Feltheimer, who was recently given a contract extension through 2014 with an annual base salary of $1.2 million, said he welcomed Icahn’s input.

So, too, do analysts, many who believe Lionsgate’s stock has languished.

Brian Shipman, analyst with Jefferies & Co. in New York, said in a research note that with Icahn “stirring the pot,” some sort of corporate action “is more likely.”

He said Icahn’s presence would entice management to concentrate on cost efficiencies, which he said included producing lower-risk/medium-reward movies — a previous hallmark of Lionsgate.

“Recently, Lionsgate expanded its slate and entered more competitive film genres with only a limited degree of success,” Shipman said. “We believe the presence of an activist shareholder such as [Icahn] will re-focus Lionsgate on projects with more favorable risk/reward potential.”

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