Icahn tender offer could trigger default for Lions Gate

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Carl Icahn is looking to put the squeeze on Lions Gate.

The activist investor today made a surprise tender offer to increase his stake in the independent film and television studio based in Santa Monica to just under 30%, up from 19%. He is offering to pay $6 per share, a 14% premium over the company’s closing stock price Monday of $5.23.

If Icahn increases his stake to more than 20%, it would trigger a default in Lions Gate’s senior revolving credit facility and permit the company’s lender to demand accelerated repayment. That would put a financial strain on the studio, most likely preventing it from engaging in any strategic moves that it is considering such as acquiring the Miramax library from Walt Disney Co. or the library of struggling Metro-Goldwyn-Mayer Inc.

Icahn has been aggressively increasing his ownership of Lions Gate since October 2008. He brought his stake to 19% with two purchases over the last month. He has been a critic of the company’s management including Chief Executive Jon Feltheimer and Vice Chairman Michael Burns. Last year Icahn threatened to wage a proxy battle to take control of the company’s board after his request for four board seats, one for his son Brett, was rejected by Lions Gate.

Although Lions Gate has made some progress on its financial performance -- in the quarter ended Dec. 31, its revenue grew 15% to $371.8 million and its net loss dropped by a third to $65.3 million -- its stock has been stuck in a rut, trading at less than $6 since October. Lions Gate stock on Tuesday immediately jumped 7% to $5.57 on news of Icahn’s offer.

[Update, 11:45 a.m.: A spokesman for Lions Gate issued the following statement: ‘Consistent with its fiduciary duties and in consultation with its financial and legal advisors, Lionsgate’s Board of Directors will review Mr. Icahn’s proposal and will make its recommendation to shareholders promptly.’]

[Update, 5:49 p.m.: For more, including a comment from Icahn, see the story in tomorrow’s Times.]

-- Ben Fritz and Claudia Eller