Mogul 4.64 million shares of Lionsgate

As Carl Icahn’s stake in Lionsgate balloons to nearly 40%, bizzers and Wall Streeters are perplexed about the maverick investor’s next move and what the ongoing drama means for the company.

“It’s a situation that’s become unpredictable,” said analyst Matthew Harrigan of Wunderlich Securities.

Icahn needs to acquire 12% more of the company to become its controlling shareholder. It’s expected that Lionsgate brass will have no choice but to try to negotiate a settlement that will likely involve giving an Icahn rep at least one seat on the company’s board of directors. Icahn has promised to launch a proxy fight to replace Lionsgate’s 12-member board and oust toppers Jon Feltheimer and Michael Burns.

The completion of Icahn’s hostile $7 a share tender offer for the minimajor, which expired midnight Wednesday, had left him a with 33.9% stake in Lionsgate. On Thursday, he acquired an additional 4% of the company by buying 4.64 million shares on the open market at $7 a share, bringing his total holdings 44.8 million shares, or 37.9%.

Lionsgate responded Thursday evening by announcing a poison pill that will be enacted if Icahn’s stake hits 38 percent. The “shareholder rights plan” — approved by its board — makes a takeover prohibitively expensive by issuing one share purchase right to each outstanding common share of Lionsgate as of the close of business on July 12.

Lionsgate said the plan is designed to avoid a “creeping” takeover, ensure that its board has time to allow competing offers to emerge and to make certain that all shareholders are treated fairly.

The board had enacted a poison pill several months ago during Icahn’s tender offer that would have kicked in when Icahn’s stake reached 20 percent. But Canadian regulators voided that measure at Icahn’s request, asserting that shareholders should have the right to decide whether to tender their shares.

Icahn’s next step is not immediately clear. He has yet to disclose his slate of opposition directors, and Lionsgate has yet to sked its annual shareholders meeting, where a vote on proxy issues and members of the board of directors will be taken. The meeting usually takes place in September during the Toronto Film Festival.

Shares of Lionsgate rose 17 cents to $7.15 a share in trading on the New York Stock Exchange.

Icahn told the Bloomberg news service in an interview Thursday he can’t buy any more shares in the open market because of limits set by Canadian law. Lionsgate had no comment about the share purchase.

In response to the completion of the tender offer, Lionsgate noted more than 66% of its shareholders rejected Icahn.

“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,” the company said in a statement. “Our focus continues to be running the business to build value for all of our shareholders.”

Harrigan said it’s uncertain what Icahn will do next, given that several institutional shareholders have continued to support management, including former Icahn associate Mark Rachesky of MHR Fund Management, which owns just under 20% of Lionsgate, and Gordon Crawford of Capital Research Global Investors, which owns 10.5%. If he were to launch another tender offer, it would likely need to be at a higher price than $7 a share to be successful, Harrigan said.

No matter what happens in the short term, Icahn will remain a major distraction to Lionsgate management as he continues to be highly vocal in his criticism of the company’s strategy.

“It’s hard to see how management can optimize performance with Carl at 38%,” Harrigan said.

The tender offer had increased Icahn’s share by an additional 2% during the past two weeks, setting the stage for a proxy fight. Icahn’s stake had been at 19% several months ago when he launched the offer and 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, as has been speculated. He also predicted that Lionsgate share price would decline once his offer ended.

During the tender offer, Lionsgate labeled 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 management strategy is sound.

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