Battle could be brewing for control over studio

An all-out battle for control of Lionsgate appears to be brewing.

Carl Icahn, who has rapidly boosted his stake in the company to 14.5% during the economic crisis, is in talks with the company that could see the activist investor end up with several seats on Lionsgate’s board.

The company had no comment about the discussions, but people close to the situation confirmed the talks late Friday. Sources have described the interactions as decidedly testy.

Adding potency to Icahn’s pursuit are his close ties with Mark Rachesky, whose MHR Fund Management owns the biggest position in Lionsgate held by any single entity at 19.4%. The two investors are described as acting in concert, and together they already own more than one-third of the company.

Icahn disclosed in a Feb. 23 SEC filing that he could seek to add directors by expanding the current board or removing some members. The current board of the Vancouver-based company has 12 members; eight of the 12 are required to be Canadian residents.

Lionsgate exposed some vulnerability Feb. 9 when it reported a $93.4 million quarterly loss that badly missed Wall Street estimates. Execs responded by announcing a leaner film slate and at least $100 million in cuts to annual production spending.

The moves did little to revive the company’s reeling stock, which hit a five-year low last month, dipping under $4. Shares closed Friday at $5.32, having risen 3% before word of Icahn’s board talks hit Wall Street.

Icahn has not spelled out his wishes, and his Lionsgate pursuit has been stealthier than his breakup crusade against Time Warner management, which ultimately netted him some concessions. While Time Warner topper Jeff Bewkes resists the conclusion, Icahn’s vision of a leaner media conglom has partly been realized in recent months.

One thing is certain — when Icahn gets fixated on a company, that fact alone can be a destabilizing force. Such was the case with Time Warner and Blockbuster, two of the billionaire’s recent media quests.

One Lionsgate asset that undoubtedly interests Icahn is the company’s library of 8,000 films and 4,000 TV shows; it generates $250 million in revenue and $90 million in free cash flow every year. Along with recent company-generated hits like “Mad Men,” “Crash” and the “Saw” series, the library includes some valuable inherited titles such as “Dirty Dancing” and “Terminator 2: Judgment Day.”

Still, a transaction involving the library would be extremely tough to pull off in the current climate.

Icahn is the third-largest investor in the company, after Rachesky’s MHR with 19.4% and Steinberg Asset Management with 14.6%.

Although it has been roughed up in recent weeks, Lionsgate managed the biggest opening weekend in its history with Tyler Perry’s “Madea Goes to Jail.” Domestic cume on the pic after two weeks is $76.5 million. Solidifying its ties to Perry, the company last Wednesday acquired rights to two more Perry films — “Why Did I Get Married Too” and “I Can Do Bad All by Myself.” The multihyphenate plans to write, direct and star in both.

Also last week, Lionsgate closed its $255 million purchase of TV Guide Network (which includes TV Guide Online but not the magazine).

Lionsgate pinkslipped 13 employees — about 4% of Lionsgate’s total staff of more than 320 — as part of integrating network and online operations. TV Guide Network is best known for its red-carpet reports from awards shows and “Idol Tonight,” which covers “American Idol.”

Lionsgate did reup TV Guide net prexy Ryan O’Hara, who told Daily Variety that he expects no further layoffs.

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