MGM bid spurs lawsuit
The prolonged and bizarre battle between Lionsgate and Carl Icahn has escalated as the mini-major slammed the billionaire with accusations of duplicity in trying to take over MGM.
Lionsgate made the allegations in a suit filed against Icahn in U.S. District Court in New York on Thursday — a day before MGM’s murky future may be decided. MGM debtholders are voting on whether to send MGM into bankruptcy court and leave Spyglass Entertainment in charge, while Icahn and Lionsgate are still teamed on a 2-week-old rival plan for a Lionsgate-MGM merger.
The timing of the lawsuit is particularly noteworthy as some of the MGM creditors have privately expressed concerns about supporting the Lionsgate merger plan because of suspicions they hold about the billionaire investor’s tactics and motives.
Lionsgate seeks undisclosed monetary damages, a public correction of “material” misstatements and return of all common shares that Icahn acquired after March 1. Reps for MGM, Icahn and Lions-gate had no comment about the suit, which names Icahn Partners LP and Icahn’s son Brett as co-defendants.
The action alleges Icahn used tender offers to shareholders, proxy filings and public statements to undermine efforts by Lions-gate to acquire a stake in MGM earlier this year so he could acquire part of MGM’s $4 billion in debt.
“Recent developments have revealed that Icahn was playing a double game,” Lionsgate said in the suit. “While publicly denouncing a merger with MGM as foolish and MGM itself as a dinosaur with a decaying library, Icahn was buying up MGM’s privately traded debt.”
Icahn, who already owns 10% of MGM’s debt and 33% of Lionsgate, has made three separate offers to buy more MGM debt within the past week.
The suit accused Icahn of secretly plotting earlier this year to merge the two studios — “but only after he had acquired a sufficiently large position in both companies at depressed prices to ensure that he maximized his own profits.”
Icahn’s accused of hiding his true intentions for MGM to benefit himself. “He wanted to postpone it until he could buy as much of both companies as he could and thus extract for himself as much of the value stemming from the merger as possible,” the action said.
Lionsgate also alleged Icahn tried to block its attempts to merge with two other unnamed studios in June by threatening to challenge other transactions and to sue any entity that interfered with his takeover offer for the company.
“Unwilling to become embroiled in vexatious litigation brought by a plaintiff with bottomless pockets, they both walked away from a deal with Lionsgate at that time,” the complaint said.
Specifically, the suit asserts Icahn had said in March — while MGM and Lionsgate were in merger discussions — that combining the companies would be similar to “tying two one-legged men together.”
As a result, the suit alleged, millions of Lionsgate shares were tendered into Icahn’s tender offer while Icahn was “privately planning to orchestrate an MGM transaction for his own benefit.”
For his part, Icahn has filed suits against Lionsgate in New York and Canada over Lionsgate’s debt-to-equity transaction this summer that diluted Icahn’s stake from 38% to 33.5% while boosting Mark Rachesky’s from 19% to 29%. Icahn’s attempting to void that transaction.
He also recently extended his tender offer to buy more Lionsgate stock until Monday.
Icahn’s made three separate offers within the past week to buy MGM debt. Debtholders face a Friday deadline to decide whether to approve a proposed pre-packaged bankruptcy deal that would wipe out MGM’s equity and leave the debtholders with 95% of the new MGM, with Spyglass holding the remaining 5%.
The Lionsgate proposal would combine the two studios and give MGM debtholders a 55% stake. Lionsgate has said it could reduce costs by $100 million and boost cash flow by $400 million over the next six years under its plan.