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Lionsgate Board: Careful What You Wish For

Lionsgate Entertainment's board of directors took a somewhat parental stance concerning activist investor Carl Icahn's tender offer for its convertible debt, essentially telling notedholders they can do what they want, but they had better be aware of the consequences.
Icahn, who owns about 14.3% of Lionsgate stock, broke off talks with the board earlier this month, mainly over a disagreement concerning standstill provisions. Later, the former corporate raider launched a tender offer for some of Lionsgate's convertible debt, which some saw as an attempt by Icahn to eventually accumulate more stock.
In a statement Thursday, Lionsgate's board said it would express no opinion and remains neutral toward Icahn's tender offer, noting that each noteholder should make its decision whether to tender based on their individual circumstances.
"Lionsgate's board, however, strongly urged noteholders to consider all aspects of the Icahn Group's offer carefully before deciding for themselves whether to tender," the board said in a statement. Among the consequences of a successful tender that noteholders should be aware include:
•The terms of Lionsgate's secured revolving credit facility, which state that a change of control would be triggered if any one person or group holds 20% or more of its total equity. Such a change of control could trigger a default event under the credit facility.
•The potential of default and acceleration of other outstanding debt. A change of control could result in cross-default and acceleration of the studio's payment obligations under other facilities.
•There may be greater value for noteholders after 2011 than under the Icahn offer. Under the existing terms of the notes, noteholders have certain rights, beginning on Oct. 15, 2011 and at specified times thereafter, to require Lionsgate to repurchase their notes for 100% of the principal amount plus accrued and unpaid interest.
•The Icahn Group could later realize a greater gain on the notes. According to the board, of Icahn were to gain control of the notes - at a price below face value - he would have the right to require the studio to repurchase the notes at face value plus interest.
Lionsgate also noted that Icahn has not made an offer, nor expressed any intention, to buy additional shares of Lionsgate's stock.