Carl Icahn Starts New Bid for Lions Gate at Lower Price After Truce Ends

Billionaire investor Carl Icahn started a new tender offer for Lions Gate Entertainment Corp., after a truce with the film and television studio expired.

Icahn offered $6.50 a share, or 7.1 percent less than his previous bid, according to a statement today. Separately, Vancouver-based Lions Gate issued new shares to MHR Fund Management LLC in a debt exchange, putting 12 percent of the stock in friendly hands and diluting Icahn’s holdings.

The exchange with a fund led by Mark Rachesky, who has a seat on the Lions Gate board, will make it harder for Icahn to gain a majority of the stock or win a threatened proxy fight to replace the management and directors. The swap boosts Rachesky’s stake to almost 29 percent, according to a filing, while cutting Icahn’s to about 33 percent from almost 38 percent.

“This was management’s last chance,” said Matthew Harrigan, a Denver-based analyst with Wunderlich Securities who recommends the shares. “They needed someone with a large position to step up if they were going to stop him.”

A 10-day truce between Icahn, 74, and Lions Gate ended yesterday. The two sides said they discussed potential acquisitions and possible board seats for Icahn. The talks didn’t yield results that would merit an extension, Icahn said. Discussions on acquisitions may continue in the future, he said.

Rachesky, 51, a former chief investment officer with Icahn, increased his stake in a complicated transaction in which one of his investment funds purchased $100 million of convertible notes from Kornitzer Capital Management and then exchanged debt for stock. Kornitzer, based in Shawnee Mission, Kansas, also owns 1.62 million Lions Gate shares, Bloomberg data show.

May Buy More

Rachesky, who is based in New York, said in a statement he bought the shares because they “represented an attractive investment opportunity” and may buy more. He paid $105.7 million in total for the debt, according to the statement.

In July 2009, Rachesky entered into an agreement with Lions Gate in which he agreed to vote his shares in support of management and to join the board. At the time, Icahn was negotiating for as many as three seats on the company’s board. He said he broke off the talks when Lions Gate insisted he adhere to a standstill agreement.

The debt swap increases Lions Gate shares outstanding by 16.2 million, the company said in a statement, or about 14 percent based on 118.1 million shares outstanding previously.

Lions Gate, distributor of the “Saw” horror films, climbed 50 cents, or 8.3 percent, to $6.53 at 4:02 p.m. in New York Stock Exchange composite trading. The stock has risen 12 percent this year.

Critical of Spending

Icahn, who is Lions Gate’s largest shareholder, previously made a $7-a-share bid, which expired on June 30. He has criticized the company’s spending on films and said in June that he planned a proxy fight to replace management and the board.

Lions Gate’s board said in a statement it will review Icahn’s latest offer. The company, the producer of TV’s “Mad Men,” has also held talks to buy Metro-Goldwyn-Mayer Inc., a person with knowledge of the situation has said.

Under the debt exchange, Lions Gate swapped $36 million of its 3.625 percent convertible senior subordinated notes due 2025 and $63.7 million of 2.9375 percent convertible senior subordinated notes due 2024 in a private transaction.

The debt was exchanged for new notes that were converted into shares at a price of $6.20 each, according to Lions Gate, which is run from Santa Monica, California.

To contact the reporters on this story: Ron Grover in Los Angeles at Rgrover5@bloomberg.net; Katie Hoffmann in New York at khoffmann4@bloomberg.net

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