Carl Icahn is threatening to sueLions Gate Entertainment one day after the company made a defensive move that endangers the investors long-running crusade to take over the film and television studio.
On Tuesday, Lions Gateissued new sharesto its second-largest shareholder, Mark Rachesky, increasing his holdingsto just under 29% from 20% as part of a complex debt-for-equity swap. The action diluted theequity of all shareholders, including Icahn, whose stake fell to justover 33% from nearly 38%.
Icahn contends the stock deal violates an agreement he and Lions Gate madefor a 10-day truce that ended at midnight Monday.Although Lions Gate announced the stock deal on Tuesday, after the expiration of the agreement, Icahn and his lawyers said they are going to look at whether the companyhad agreed tothe debt-for-equity swapwith Rachesky during the detente.
In a July 9 letter to Icahn outlining the truce, Lions Gate Vice Chairman Michael Burns said that during the 10-day period, his studiowould not issue, agree to issue or authorize or propose the issuance of any securities to … any member of its board of directors or their affiliates. Rachesky, a former employee of Icahns, is on Lions Gates board.
Not only has Lions Gates board diluted the companys shareholders in an attempt to entrench themselves,but it has violated the agreement it made with us, which among other things prohibited Lions Gate from issuing stock during this period, said Icahn. We intend to litigate.
A Lions Gate spokesman declined to comment.
Icahn said he also intends to litigate against Lions Gates recently adopted poison pill, which would make it difficult for him toaccumulate more shares. The investor successfully persuaded regulators in Canada, where the company is legally based, to throw out a previous poison pill.
We are going to challenge the poison pill again and go to court to try to getit removed, said Icahn.
On Tuesday, after the 10-daytruce with Lions Gate elapsed, Icahn launched a new tender offer at $6.50 per share, 50 cents less than his previous bid to buy up the companysoutstanding shares.
In an attempt to fend off Icahns hostile takeover try, Lions Gate announcedTuesday that it had converted $100 million of its debt to equity at a price of $6.20 a share. Later that day, Rachesky, who has been supportiveof management in itsbattleagainst Icahn,disclosedin a filingthat one of his investment funds hadreceived the stock in exchange for the debt it had acquired fromKornitzer Capital Management.
The transaction makes it more difficult for Icahn to win the majority of Lions Gates outstanding stock or win the proxy war he is threatening to replace the companys top management and board directors.
It now appears that in order to take over Lions Gate, Icahn is banking on the courts to rule in his favorand void the deal with Rachesky.
Lions Gate stock closed down slightly Wednesdayat $6.50.
– Claudia Eller and Ben Fritz
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