Tags: Icahn | Lions-Gate | Plotting | Merger

Icahn Accused in Lions Gate Suit of Plotting Merger

Friday, 29 Oct 2010 08:44 AM

Billionaire Carl Icahn was sued over the Metro-Goldwyn-Mayer Inc. studio deal by Lions Gate Entertainment Corp., which alleges the financier is “secretly plotting” to merge the studios.

In the lawsuit, Vancouver-based Lions Gate, the studio whose films include “Crash” and “Precious,” alleges that Icahn realized by June that Lions Gate was in advanced negotiations with two unidentified studios. Aware that the deals might dilute his stake in Lions Gate, Icahn “took drastic and improper action,” the studio said.

Icahn, 74, the studio’s largest shareholder, undermined any proposed transactions by making false and misleading statements, Lions Gate said. He told the investing public that such a deal would be a “financial debacle” and issued press releases vowing to challenge any transaction and sue any entity that interfered with his tender offer, the studio said.

“Icahn opposed a merger with MGM not because it was bad for Lions Gate shareholders, but because it was good — so good, in fact, that he wanted to postpone it until he could buy as much of both companies as he could and thus extract for himself as much of the value stemming from the merger as possible,” Lions Gate said in the complaint, filed yesterday in federal court in New York.

‘Depressed Prices’

Lions Gate, which also produces the Emmy Award-winning television show “Mad Men,” said that Icahn issued a series of misleading statements while secretly plotting to merge the two studios.

Icahn acquired a sufficiently large position in both companies “at depressed prices to ensure that he maximized his own profits,” Lions Gate said. He was aided by Mark Cuban, who sold his 5.4 percent stake to Icahn in June for $7 a share after Lions Gate told Cuban another buyer was willing to pay more, according to the complaint.

“According to two individuals with knowledge of the arrangement, Cuban tendered his shares after receiving assurances from the Icahn Group that he would receive special consideration, perhaps related to his other business interests,” the studio claimed.

Cuban, the billionaire co-founder of the TV network HDNet and owner of the Dallas Mavericks basketball team, said he didn’t accept the other bid for his Lions Gate stake “because I was advised there were legal issues with the offer.”

Unfolding Circus

“There were and are no side deals with Icahn or any person or company affiliated with him,” Cuban said in an e-mailed response to questions. Cuban said he sold the shares because “I wanted the liquidity” and “wanted nothing to do with the circus that was unfolding at Lions Gate.”

Cuban isn’t named as a defendant in the Lions Gate suit. Those who are named include Icahn, his Icahn Partners LP and his son Brett Icahn.

Susan Gordon, a spokeswoman for Icahn, said he wasn’t immediately available for comment. Susie Arons, a spokeswoman for MGM, declined to comment.

Lions Gate seeks to rescind the purchases of all of its shares acquired by Icahn. Lions Gate also asked the judge to bar Icahn from buying more of its shares and to grant the studio unspecified damages caused by his alleged interference in its proposed deals.

Lions Gate further alleges that the actions of Icahn and the other defendants violated Securities and Exchange Commission rules.

‘Double Game’

“Recent developments have revealed that Icahn was playing a double game,” Lions Gate said in the complaint. “While publicly denouncing a merger with MGM as foolish and MGM itself as a dinosaur with a decaying library, Icahn was buying up MGM’s privately traded debt.”

Lions Gate alleges that in March, after the Icahn group began its first tender offer for all of Lions Gate’s outstanding shares, Icahn began publicly attacking a possible merger with another studio. He also “falsely” told Lions Gate shareholders that he would block an MGM deal as “delusional,” according to the complaint.

“Millions of Lions Gate shares were tendered into the Icahn offer on that basis,” Lions Gate said in the complaint. “But it was not true. Icahn was in fact privately planning to orchestrate an MGM transaction for his own benefit.”

Lions Gate says that in June, aware that Lions Gate was in “advanced merger negations with two studios, he threatened to sue any company that entered into such a transaction with Lions Gate, including MGM.”

Amassed Debt

During this period, Icahn amassed more than 10 percent of MGM’s $4 billion in debt and increased his stake in Lions Gate from about 19 percent in March to about 33 percent by late September, Lions Gate said.

MGM creditors are scheduled to vote today on a plan to turn management of the Los Angeles-based studio over to Spyglass Entertainment founders, a plan Icahn opposes.

In the Spyglass scenario, creditors would exchange debt for about 95 percent of the equity when MGM emerges from bankruptcy. The owners of Los Angeles-based Spyglass, producer of the film “The Sixth Sense,” would get about 5 percent.

Icahn has offered to buy MGM’s senior secured loans for 53 cents on the dollar, and has separately pledged to buy the debt for 45 cents on the dollar if creditors who hang on to their loans vote against the Spyglass plan.

Lions Gate Offer

Lions Gate is offering MGM creditors about 55 percent of the combined company and $500 million in new debt. While Icahn supports Lions Gate’s bid, he separately has conducted a hostile battle to wrest control of the studio from its management since March.

His current bid of $7.50 a share for Lions Gate, run from Santa Monica, California, expires on Nov. 1. The shares fell 13 cents to $7.28 in New York Stock Exchange composite trading yesterday. They have climbed 25 percent this year.

MGM, hobbled by more than $4 billion in debt, has told debt holders in a letter that reorganization led by Spyglass Entertainment remains the best option, according to a person with knowledge of the situation who asked not to be named because the discussions are private.

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Billionaire Carl Icahn was sued over the Metro-Goldwyn-Mayer Inc. studio deal by Lions Gate Entertainment Corp., which alleges the financier is secretly plotting to merge the studios. In the lawsuit, Vancouver-based Lions Gate, the studio whose films include Crash and ...
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Friday, 29 Oct 2010 08:44 AM
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