Swap sinks mogul's share to 33.5%

Breaking off their 10-day truce, Carl Icahn and Lionsgate returned to the battlefield with a flourish Tuesday as the billionaire investor launched a new hostile takeover and the minimajor made a bold move to curb his power.

The day ended with former Icahn associate Mark Rachesky, who’s been supporting management, increasing his stake in Lionsgate to 28.9% from 18.6%.

As the markets opened Tuesday, Icahn launched the new takeover, setting a price of $6.50 per share and reiterating his pledge to wage a proxy fight to replace the board of directors. The new offer, which expires Aug. 25, is 7% less than his previous $7 per share offer.

A few minutes after the markets closed, Lionsgate managed to dilute Icahn’s stake in the company from 37.9% to 33.5% by swapping $100 million of its debt for stock — making it more difficult for the feisty billionaire to gain majority control.

Those shares were acquired by Rachesky, who once worked for Icahn but is now extremely competitive with his old boss. Rachesky upped his stake in Lionsgate through his MHR investment fund.

The shift of shares to Rachesky may increase pressure on Icahn to reach a negotiated settlement with the company and abandon a proxy fight. That settlement might including obtaining board seats on the 12-seat board, possibly for himself or his son Brett.

Tuesday’s events occurred after the expiration of a 10-day truce during which both sides agreed to halt hostilities so they could explore an MGM-Lionsgate merger. Those talks did not lead to anything concrete.

Icahn said Tuesday he would not extend the truce for now, but also noted that he wouldn’t dismiss that possibility in the future.

“While certain discussions regarding acquisition opportunities might continue in the future, the Icahn Group determined that there were no immediate opportunities that would merit extension of the 10-day standstill period,” he said in statement.

With MGM’s fate tied to its 140 debtholders arriving at a consensus, the notion of a Lionsgate-MGM combination emerging before the end of the truce had been viewed as a longshot. Sources close to the situation have said Lionsgate execs presented a proposal last week to MGM debtholders under which Lionsgate toppers Jon Feltheimer and Michael Burns would have run the combined entity.

In the meantime, Lionsgate has to deal with Icahn, who has owned shares since 2006 and has blasted management for its strategy and spending — accusations that Lionsgate toppers have attacked as unfounded.

On Tuesday, Lionsgate made no mention of diluting Icahn’s holdings. Instead, it portrayed its debt swap as “a key part of the company’s previously announced plan to reduce its total debt, as well as its nearer term maturities.”

Lionsgate said it exchanged $36 million of its 3.625% convertible senior subordinated notes due in 2025 and $63.7 million of 2.9375% convertible senior subordinated notes due in 2024 in a private transaction. The notes were converted into 16.24 million common shares at $6.20 a share — which Lionsgate described as a premium to the Monday closing price of $6.03.

Lionsgate stock had jumped 50¢ to $6.53 a share on Tuesday in the wake of the new takeover bid, recovering nearly half of the decline since Icahn’s previous takeover offer expired at the end of June.

Icahn complained Tuesday that management isn’t interested in listening to the shareholders. He also said that his new offer’s conditioned on Lionsgate avoiding any major transaction outside the normal course of business.

In response, Lionsgate issued its standard statement that its board of directors will review the takeover bid, advising shareholders to take no action at this time.

Earlier this month, it introduced a “poison pill” or shareholder rights program to prevent a hostile takeover if any single shareholder acquires more than 38%.

Lionsgate has not set its next shareholders meeting but it’s usually held in mid-September during the Toronto Film Festival.

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