Lions Gate Entertainment Corp. on Friday rejected a bid by activist shareholder Carl Icahn to boost his stake in the movie studio, and its board disclosed the adoption of a provision meant to keep him from buying more shares.
The so-called poison pill, which takes effect Friday, 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, which has been fending off Icahn's advances for a year, such investors would suddenly find the value of their shares diluted, while the value of shares held by others would not change.
Shareholders are expected to confirm that provision in a May vote.
Icahn, a billionaire who owns nearly 19 percent of the company, wanted to raise his stake to nearly 30 percent, a move that the company said would have given him an effective veto over major transactions.
The larger stake would have given Icahn "superpowers" over company decisions without actually paying for complete control, Lions Gate vice chairman Michael Burns said in an interview Friday. "That is not a good thing for all of the shareholders in any way."
The company's board called Icahn's unsolicited offer "inadequate." He had offered $6 per share — or as much as $79 million — for up to 13.2 million outstanding shares. Investors trying to buy a larger stake in companies typically offer a substantial premium over current market prices, but in Icahn's case, the offer was 29 percent below the average target price for the shares by nine Wall Street analysts, the company said.
Shares in Lions Gate rose 10 cents, or 1.8 percent, to $5.77 in midday trading Friday.
The tussle for control comes as Lions Gate is considering bidding for the faltering Metro-Goldwyn-Mayer Inc. studio and The Walt Disney Co.'s Miramax Films division.
Icahn had sought to rein in company spending and conditioned his offer on the company not entering into a major transaction. Either transaction could cost the studio hundreds of millions of dollars.
His tender offer, made last month, could also have triggered a default on a $340 million line of credit given to the company by JPMorgan Chase & Co. because it would amount to a change in control.
Lions Gate said Friday that cross-defaults could mean it would suddenly have to pay back some $516 million in outstanding debt.
Burns said the threat of default was "a significant factor" in advising shareholders not to sell their shares to him.
Icahn has been increasing his Lions Gate holdings since 2008 as he has fought for control with his former chief investment adviser, Mark Rachesky, who owns a nearly 20 percent stake.
Icahn currently does not hold a seat on the board. Icahn's son, Brett, who has been working with his father to secure a seat, declined to comment on Friday.
Lions Gate, which is based in Vancouver, Canada, but operates out of Santa Monica, Calif., was behind the Oscar-nominated movie "Precious: Based on the Novel 'Push' By Sapphire." It also owns the TV Guide network. It is in the midst of launching its mock superhero movie, "Kick-Ass," with a premiere on Friday.
Burns said the company remains focused on its strategy of smart acquisitions and developing a strong film and TV show slate, which includes "Mad Men" and "Nurse Jackie."
"This is a marathon, not a sprint," he said. "It's about building shareholder value brick by brick."
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