Activist investor Carl Icahn has turned up the heat in his quest for control of Lions Gate Entertainment, filing a law suit Monday claiming a recent convertible stock deal was a blatant attempt to thwart his pursuit of the entertainment giant.
Icahn has waged a battle for control of Lion Gate for more than a year. On July 19 the former corporate raider announced that his tender offer for Lions Gate shares boosted his holdings in the company to about 37.9% of its outstanding stock. That was only to last a day, as Lions Gate announced a $100 million convertible stock offering on July 20 which effectively diluted Icahn's holdings to about 33.5% of outstanding shares.
In a press release last week, Lions Gates said the exchange of the notes was conducted with Kornitzer Capital Management and helped reduce its debt. But in a statement July 26, Icahn said Lions Gate neglected to mention that Kornitzer sold the notes to an investment fund controlled by Lions Gate board member Mark Rachesky, a staunch supporter of Lions Gate management. Through the deal, Rachesky increased his holdings in Lions Gate from about 19.9% to 28.9% of its outstanding stock and diluted other shareholders, Icahn included.
In a statement, Icahn called the Lions Gate action "reprehensible," adding that Rachesky purchased the stock at the" bargain price" of $6.20 per share. Icahn closed a $7 per share tender offer for Lions Gate stock on July 9 (which Lions Gate said was too low) and on July 19 initiated another tender offer at $6.50 per share.
In the statement, Icahn said that he filed suit in New York State Supreme Court on July 26 calling for the Rachesky transaction to be nullified and prohibiting the defendants (Rachesky, Kornitzer and Lions Gate) from voting their shares in any election of directors or any other shareholder vote. Icahn also is asking for compensatory and punitive damages.
"Unlike many other shareholders, whom the Lions Gate directors seem to cynically assume must either suffer the board's rapacious tactics in silence or sell their shares, I am fortunate enough to have significant resources with which to protect my interests, and I will spare no expense in holding the culpable parties responsible for their behavior," Icahn said in a statement. "We view this transaction as a prime example of scorched earth tactics executed with other people's money - in this case, the money of Lions Gate shareholders - and they will be met with an equally forceful response."
Lions Gate did not immediately return an e-mail seeking comment.
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