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Carl Icahn Launches Hostile Bid For Lions Gate

Icahn Lions Gate

ANDREW VANACORE   03/19/10 05:59 PM ET   AP

NEW YORK — Activist shareholder Carl Icahn raised the stakes in his yearlong dispute with Lions Gate Entertainment Corp. on Friday, launching an all-out bid to take over the movie studio following disagreements over its spending.

The hostile bid comes a week after Lions Gate rejected Icahn's offer to buy a larger minority stake and rewrote its bylaws to make such a takeover attempt more difficult in the future.

The new offer for all outstanding shares also raised the specter of Canadian government involvement because Icahn, an American, could own the Vancouver-based company and cause friction with the country's cultural policies.

Icahn owns almost 19 percent of Lions Gate, and his new offer for the remainder was unchanged from the $6 per share he offered last month when he sought to increase his stake to just under 30 percent. That bid represented a 15 percent premium over the stock's latest closing price at the time.

Shares rose 6 cents, or 1 percent, to close at $6.03 on Friday, but fell 8 cents to $5.95 in after-hours trading.

Lions Gate was behind the Oscar-winning movie "Precious: Based on the Novel 'Push' By Sapphire." It also owns the TV Guide network and made the "Saw" horror movies and such television shows as "Weeds" and "Nurse Jackie." It will launch its mock superhero movie, "Kick-Ass," next month after it premiered last week at the SXSW Film Festival.

Lions Gate management said it would review Icahn's new bid, worth about $575 million. It noted the bid price had not changed.

Earlier, Lions Gate spokesman Peter Wilkes told The Associated Press that the bid was still below analysts' average price target of $8.67.

"The Icahn Group's amended tender offer does not increase the price of the original offer, which the board previously determined to be financially inadequate and not in the best interest of Lions Gate or its shareholders," he said.

The company has also warned that a change in control could trigger a default on outstanding debt totaling $516 million.

To allay such fears, the 74-year-old billionaire on Friday proposed a bridge loan to cover any debt issues while new financing is raised. Icahn also said he would sell off Lions Gate's Canadian distributor, Maple Pictures Corp., so it could continue to be Canadian-controlled in line with the country's Investment Canada Act.

Icahn is conditioning his offer on winning at least 50.1 percent of the stock in the company, which is based in Vancouver but operates out of Santa Monica, Calif. And it would only be valid if shareholders, the courts or Canadian regulators strike down the so-called poison pill that the company's board has approved.

That provision, which took effect last week, triggers whenever any hostile acquirer gets a stake in the company exceeding 20 percent. Under a shareholders rights plan adopted by the company's board, such investors would suddenly find the value of their shares diluted, while the value of shares held by others would not change.

Shareholders are to vote on the measure at a May 4 meeting. But Icahn is hoping to settle the issue before then, with his new offer expiring April 30. Icahn is hoping that the measure is struck down before then, or enough shareholders come to his side to vote it down.

Wilkes said Lions Gate's poison pill would not be triggered if shareholders representing more than 50 percent of the stock that Icahn doesn't already own accept his offer.

The tussle between Icahn and Lions Gate management has been going on for more than a year and comes as Lions Gate is looking into buying the Metro-Goldwyn-Mayer Inc. studio or The Walt Disney Co.'s Miramax Films division.

MGM is set to receive binding offers Friday and Lions Gate is expected to make a bid, although it may be lower than what MGM creditors are willing to accept.

Icahn wants to restrain the studio's spending and said Friday that shareholders should have a chance to vote on whether such a purchase is wise. He argued against buying another studio – and the library of older titles that come with it.

"I believe library values are currently declining due to, in part, weak DVD sales," he said.

Icahn said he may install new management and intends to replace the company's board of directors with his nominees if his takeover is successful.

Several analysts said Icahn's renewed bid was still too low, although it was likely to handcuff the company's expansion plans for now.

"Icahn continues to complicate any MGM bid," Wunderlich Securities analyst Matthew Harrigan wrote in a research note Friday, adding that the offer "appears lowball." "We see disruption to development rather than share price upside."

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AP Business Writer Ryan Nakashima in Los Angeles contributed to this report.

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Filed by Billy Silverman  |