By Michael White
March 18 (Bloomberg) -- Lions Gate Entertainment Corp.’s largest shareholder said he may seek a seat on the board of the independent film studio and supports management, which is under attack by billionaire investor Carl Icahn.
MHR Affiliated Funds, run by former Icahn aide Mark Rachesky, said in regulatory filings today it is “principally supportive” of management and has talked with the company about a board seat. MHR owns 23.2 million shares, or just under 20 percent, of Lions Gate stock.
“They’re saying they support them, but there are still things they want,” said David Joyce, an analyst at Miller Tabak & Co. in New York. He rates the stock “buy” and doesn’t own the shares.
Icahn, 73, with a 14.5 percent stake, is seeking to buy Lions Gate bonds that are convertible into stock. His offer followed the breakdown of talks to gain board seats at the Vancouver-based film studio. A board position would give MHR a greater role in any deal involving the company.
Lions Gate, run from Santa Monica, California, rose 4 cents to $5.35 at 4:15 p.m. New York Stock Exchange composite trading. The shares have fallen 2.7 percent this year.
Icahn said in an e-mailed statement yesterday he is offering 75 cents on the dollar for $150 million of 2.94 percent convertible senior subordinated notes due in 2024, and 73 cents on the dollar for $175 million of 3.63 percent convertible senior subordinated notes due in 2025.
Revolving Loan
Icahn hasn’t announced any specific plans for Lions Gate. In a statement last week, he has criticized the company’s use of a $340 million revolving loan for the $255 million purchase of TV Guide Network and TV Guide Online from Macrovision Solutions Corp. The transaction closed on March 2.
Rachesky may want to protect his own interests should Icahn force a sale of all or part of Lions Gate, which is the largest independent U.S. film studio and maker of the “Saw” horror films and Tyler Perry’s “Madea” comedies.
“He sees a deal on the horizon and wants to position himself to be one of the decision makers,” said Richard Dorfman, chief executive of the New York investment firm Richard Alan Inc. “If he’s on the board he has a say in the deal, as opposed to getting a proxy.”
Adam Friedman, an outside spokesman for Rachesky, declined to comment, as did Lions Gate spokesman Peter Wilkes.
Lions Gate has been cutting costs and reducing its film slate after reporting a third-quarter loss of $93.4 million last month. Icahn has raised his stake from 3.7 percent in October.
Poison Pill?
A change in control of the board, a shareholder acquiring more than 20 percent of the stock or the removal of named executives could trigger a default of the revolving loan, according to company filings. The five-year secured facility’s interest rate is Libor plus 2.25 percent.
Dorfman, whose firm owns Lions Gate shares, said he backs Icahn’s effort. It’s unlikely Icahn is interested in buying Lions Gate to operate the studio, he said.
“He’s an activist investor,” Dorfman said. “He rattles the cage and he tries to create value by doing that.”
To contact the reporter on this story: Michael White in Los Angeles at mwhite8@bloomberg.net
Last Updated: March 18, 2009 17:40 EDT
