Lions Gate Hid Deal To Thwart Icahn

Mar 14 2014 | 12:38pm ET

Lions Gate Entertainment yesterday acknowledge that it’s 2010 defeat of Carl Icahn’s takeover bid was not come by entirely honestly.

The movie and television producer admitted that it failed to disclose to investors how it staved off Icahn’s advances, by delivering 16 million new shares into the hands of a “friendly director.” In the proxy context, one of Icahn’s nominees to Lions Gate’s board lost by exactly that number of votes.

In a settlement with the Securities and Exchange Commission, Lions Gate admitted wrongdoing and agreed to pay $7.5 million. The SEC said it was the first time in about 30 years that it has sanctioned a company that was the target of a hostile takeover.

“Given the resurgence of (merger and acquisition) activity in the market and the vital importance of disclosure obligations during a tender offer battle, we want to emphasize that the Enforcement Division intends to vigilantly police misconduct that can occur during a tend offer battle,” SEC enforcement chief Andrew Ceresney said.

The SEC settlement does not identify Icahn or the “friendly shareholder” by name. But the dates and storyline certainly match up.

After Icahn managed to boost his stake in Lions Gate to nearly 38%, the two sides agreed to a 10-day truce as Lions Gate sought a deal with Metro-Goldwyn-Mayer. One minute after the period expired, at midnight on July 20, 2010, Lions Gate’s board met and agreed to a convertible bond exchange with hedge fund manager Mark Rachesky, a former Icahn ally who sat on the board. The new bonds offered a more attractive conversion price and allowed Rachesky to convert them immediately. He did so, giving him 16 million additional shares and diluting Icahn’s stake to 33.5%.

“Get me all and [Icahn] may leave,” Rachesky wrote in a test message to Vice Chairman Michael Burns. “It is our only chance. I haven’t been wrong yet about him. You have to trust me.”

Rachesky is now chairman of Lions Gate.


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