Carl Icahn increases stake in Lionsgate

Mogul sets the stage for proxy fight

Carl Icahn has increased his stake in Lionsgate to 33.9% following completion of his hostile tender offer for the minimajor — adding another 2% during the past two weeks, and setting the stage for a proxy fight.

Icahn’s $7 a share offer expired at midnight Wednesday, several months after its launch. The effort boosted his stake during that period by an additional 15% as Icahn repeatedly criticized Lionsgate’s board and management for what he sees as overspending — particularly on features — and a misguided strategy of trying to acquire another film library.

Icahn said last week, however, that he wouldn’t dismiss out of hand supporting a merger between Lionsgate and MGM. He also predicted that the share price would decline once his offer ended, but Lionsgate shares were up 22 cents to $7.20 in mid-session trading Thursday on the New York Stock Exchange.

Beyond disclosing the number of shares tendered, Icahn had no comment Thursday.

With his stake at more than 33%, the billionaire can now veto any mergers or acquisitions. But effective control of the company remains outside his grasp with several major institutional shareholders, including former Icahn associate Mark Rachesky and Gordon Crawford, continuing to support management.

During the tender offer, Lionsgate labelled Icahn’s offer “financially inadequate” and “coercive.” The minimajor also blasted Icahn’s investment record, portraying him as an incompetent meddler, and asserted that its fiscal 2010 results show that its strategies are working.

Lionsgate issued a response to the completion of the offer on Thursday, noting that holders of over 66% of Lionsgate shares had rejected it.

“We want to take this opportunity to thank our shareholders,” it said. “Lionsgate’s shareholders have repeatedly confirmed their support for the Board and management’s strategy to grow shareholder value by continuously rejecting the Icahn Group’s financially inadequate offer. Our focus continues to be running the business to build value for all of our shareholders.”

Vancouver-based Lionsgate hasn’t yet set a date for its annual shareholders meeting, at which voting would take place for members of the board of directors, and Icahn hasn’t disclosed who will be on his opposition slate. The meeting usually takes place in September during the Toronto Film Festival.

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