Lions Gate Sues Shareholder Carl Icahn Over MGM Drama
Oct 29th 2010 5:15AM
Updated Oct 29th 2010 11:20AM
Niche movie studio Lions Gate Entertainment (LGF) on Thursday sued its biggest shareholder, Carl Icahn, saying he played a "double game" by first opposing a merger with struggling studio MGM, then backing it when he had bought a large portion of its debt.
Lions Gate said in a complaint filed Thursday in New York that Icahn so vehemently opposed the combination that he caused talks to fall apart this summer.
The studio said it was only after he acquired more than 10% of Metro-Goldwyn-Mayer's (MGM) publicly traded debt and amassed greater than one-third of Lions Gate shares that he backed the plan, seeking to maximize his profits.
The company sued for "tortious interference" and various violations of Securities and Exchange Commission rules regarding public disclosures. It sought rulings that could force Icahn to unwind much of his stake in Lions Gate.
Icahn said in a statement that the lawsuit's claims were "completely without merit." In the same statement, he said he was extending his offer to buy Lions Gate shares that he doesn't own for $7.50 apiece through Nov. 12.
The shares closed down 13 cents, or 1.8%, at $7.28 on Thursday. Icahn is also offering to buy up to $1.6 billion in face value of MGM debt until Friday, an amount that would significantly increase his control over MGM.
A Lions Gate spokesman declined to comment.
Bickering Could Undermine Merger
The company's lawsuit came a day before MGM creditors must vote on a plan to combine with Spyglass Entertainment in a prepackaged bankruptcy, and throws a wrench into Lions Gate's own merger proposal, although it remains on the table.
Half of the creditors controlling more than two-thirds of the more than $4 billion owed must approve any bankruptcy plan.
In the Spyglass plan, creditors are to take a 95% stake in the new company with Spyglass owning the remainder. Lions Gate proposed offering creditors a 55% stake, although its merger would create a larger entity.
Icahn and Lions Gate have been at each other's throats since early 2009 after Icahn began adding to his holdings and pressing for greater control of the company. This spring, he successfully annulled a "poison pill" plan Lions Gate adopted to keep him from increasing his stake.
The sides are awaiting court decisions in New York and British Columbia over Icahn's suit against Lions Gate over a debt-for-equity swap that caused his stake to shrink and boosted that of rival shareholder Mark Rachesky.
Shooting Itself in the Foot?
Schuyler Moore, an entertainment attorney who has observed developments in the MGM case, said the internal bickering at this late hour would likely sink Lions Gate's bid.
"There's no way they can close MGM if they're still doing this with themselves," Moore said. "A house divided will fall."
Lions Gate said this week that its proposal to merge with MGM would save more than $100 million annually and create the world's largest library of 20,000 movies and TV show episodes, bringing its "Saw" and "Tyler Perry" movies together with MGM's James Bond franchise. MGM also owns half of the upcoming "The Hobbit" movies with Time Warner Inc.'s Warner Bros.
But MGM's creditors committee had already gone a long way toward promoting the offer from Spyglass, a production company behind such movies as "Seabiscuit" and "The Insider."
In soliciting votes on the plan Oct. 15, MGM said it would install Spyglass co-CEOs Gary Barber and Roger Birnbaum as the new co-CEOs of MGM if their offer were accepted. A Spyglass representative said Thursday evening that neither man was available to comment.