Mogul announces sale of 44 million shares in settlement pact

After three years of messy legal wrangling, name-calling and boardroom jockeying, Lionsgate and Carl Icahn have made peace. The upshot: the mini-major rids itself of a costly distraction, while the activist investor, for all his battling and bluster, breaks even.

Icahn and Lionsgate jointly announced Tuesday that Icahn and his son Brett have agreed to sell his 33% stake in the company at $7 a share in a series of deals totaling about $309 million.

Lionsgate noted the price was approximately 7% below Friday’s closing market price of $7.55, and about the same as Icahn’s cost basis for the shares.

Lionsgate co-chairman and CEO Jon Feltheimer said the deal is “in the best interests of all Lions-gate shareholders, and it allows the company to continue to focus on the execution of its long-term business plan.”

Icahn issued a statement wishing the company well on its future slate and alluding to his current battle for control of Clorox.

“As some have noted, my own ‘slate’ is pretty full at the time, and I therefore determined that it is a good time to exit,” he said.

The surprise settlement brings to a close a tumultuous period that saw Icahn blast Lionsgate management repeatedly for overspending and failing to boost the stock price to anywhere near its 2007 high of $12. Relations between Lionsgate and the billionaire soured in 2009 when he was unable to persuade management to install Brett Icahn on the board.

Icahn also criticized Lionsgate last year for its efforts to form a combined studio with MGM, but then teamed with Lionsgate to seek an MGM deal. That led to a lawsuit — one of several between Icahn and Lionsgate — in which the studio alleged Icahn had delayed a merger until it became more profitable.

Accused of meddling

For its part, Lionsgate management repeatedly accused Icahn of being an incompetent meddler, citing his mixed record in showbiz investments — even obliquely calling him out in its last earnings report, citing “decreased costs associated with shareholder activism” as a part of its improved bottom line.

The mini-major also touted its improved cash flow and balance sheet, including feature film successes such as “The Expendables” and the Tyler Perry pics and the TV shows “Mad Men,” “Weeds” and “Nurse Jackie.” The settlement announcement came with Icahn, one of the most active institutional shareholders in the investment world, focused on seeking a board seat on household products giant Clorox and announcing Tuesday he would either vote to sell Clorox for $10 billion if appointed — or buy it himself.

Under Lionsgate’s surprise deal with Icahn, the two sides will dismiss all outstanding litigation between them and release all claims they may have against each other. Deal caused shares of Lionsgate to plunge by as much as 46¢ in after-hours trading to $7.06.

The terms

Under terms of the settlement, Lionsgate will buy back 11 million shares of its common stock from the Icahns at $7 a share in a transaction to be completed by Friday. Mark H. Rachesky, a director of Lionsgate and its second largest shareholder at 29%, has purchased an additional 11 million shares from the Icahns at $7 per share in another transaction to be completed by Friday.

The deal with Rachesky, via his MHR Fund Management, will lift his Lionsgate stake to about 37%.

Over the next 35 business days, Lionsgate will also have the right to select one or more parties to purchase up to 22 million shares from the Icahns at $7 per share. The company didn’t identify potential buyers.

The Lionsgate-Icahn battle start to die down last December when shareholders backed Lionsgate’s slate of a dozen board nominees while spurning Icahn’s quintet of dissident candidates. The meeting took place a day after Icahn abandoned his hostile takeover effort in the wake of a New York court’s denial of his request to issue an injunction blocking Rachesky from voting his shares — a suit stemming from a July debt-to-equity transaction that reduced Icahn’s stake from 38% to 33%.

In March, the New York Supreme Court dismissed Icahn’s suit against Lionsgate over the Rachesky deal.

Perella Weinberg Partners served as outside financial adviser on the settlement transaction. Wachtell, Lipton, Rosen & Katz and Heenan Blaikie served as legal counsel to the Lionsgate board in connection with the transaction.

Money and machinations
Key dates in the tussle between Icahn and the studio.

March 19, 2007
Lionsgate stock hits five-year high of $12.01 per share.

Feb. 23, 2009
Icahn, who owns 14% of Lionsgate, says he may seek board seats.

March 19, 2010
Icahn launches hostile takeover bid at $6 a share.

May 4, 2010
Lionsgate approves a poison pill (later invalidated) to keep Icahn from going over 20%.

July 11, 2010
Icahn and Lionsgate reach 10-day truce to explore bid for MGM.

July 21, 2010
Lionsgate dilutes Icahn’s stake from 38% to 33% via debt swap.

Nov. 1, 2010
Icahn’s lawsuit over the debt swap is thrown out.

Dec. 13, 2010
Icahn drops hostile takeover bid.

Dec. 14, 2010
Lionsgate shareholders reject Icahn’s board slate.

Aug. 30, 2011
Lionsgate and Icahn reach a settlement.

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