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Icahn iffy about MGM deal

Investor's $7 a share offer concludes Wednesday

Carl Icahn has not dismissed out of hand Lionsgate’s pursuit of MGM — even though he is in the midst of a hostile takeover attempt of the minimajor.

Icahn’s $7 a share offer concludes Wednesday with the key question being whether he’ll be able to increase his stake from 31.8% to 33%.

The higher level would give Icahn veto power over acquisitions. But even if he doesn’t achieve that, Lionsgate management would be highly unlikely to go forward with any acquisition without Icahn’s blessing.

Icahn, in response to reporters’ questions Friday, characterized the possibility of a Lionsgate-MGM deal as having significant challenges for both studios. “If you put two one-legged men together, they don’t run any faster,” he told Daily Variety. Lionsgate had no response to Icahn’s comments.

Icahn is still promising a proxy fight for control of the Lionsgate board, which he has criticized for mismanagement and over-spending. Lionsgate has repeatedly labelled Icahn’s offer “financially inadequate” and “coercive,” and attacked his track record in prior investments.

Reports emerged last week that Lionsgate has recently held informal discussions with debt-ridden MGM about a potential merger, according to sources close to the situation. Such talks have been held off and on in recent years as MGM’s future became increasingly precarious.

In addition to getting Icahn’s backing, any Lionsgate offer for MGM would have to be structured so that Lionsgate would not add significant debt to its balance sheet, sources have indicated.

MGM has been stepping up efforts recently to sort out its future — a daunting task given its $3.7 billion debts. Those initiatives include bringing in production funds and meeting with candidates to run the studio, including Spyglass Entertainment and Summit Entertainment.

Shares of Lionsgate rose 27¢ to $7.27 Friday, a gain of 4%. Lionsgate was added to the Russell 2000 index at the close of trading so the boost may have come from investment funds preparing to bid for the stock.

While Icahn said he views a potential merger with MGM as problematic, he stopped short of saying he would oppose a deal. “if it made sense.”

MGM, like many companies in Hollywood, is facing a decline in the value of its film library because of lower DVD sales, which have long propped up the movie business.

Icahn likened Lionsgate’s desire to merge with MGM to overstretched home buyers wanting to trade up.

“It’s analogous to a couple not being able to pay their mortgage on a little house and starting to negotiate on a big, overpriced mansion that’s rumored to be haunted,” he said.

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