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Lionsgate, Icahn exchange fire

Investor blasts co.'s leaders, execs issue letter to shareholders

READ: Lionsgate’s letter to shareholders | Cuban backs Icahn

Carl Ichan’s blistered the management of Lionsgate and officially notified the minimajor that he’ll launch a proxy fight to take over the board of directors.

In a lengthy letter to the 12-member board sent Friday, Icahn reiterated his criticisms of Lionsgate management.

“I am writing to express my grave concern as a shareholder – and, I believe, as a soon to be much larger shareholder – over your apparent ambivalence regarding Lions Gate’s fate,” he said. “I am truly mystified by some of your actions – and your inaction – in the face of the abject failure of the current management team to deliver value to shareholders, and I fear for the future of our company.”

Lionsgate shot back, repeating its contention that Icahn’s making a lowball offer.

“Lionsgate has a strong balance sheet and ample cash to continue driving shareholder value,” the company said. “Shareholders should ask themselves why Mr. Icahn wants to acquire shares at U.S.$7.00 per share if he believes Lionsgate is at risk. Lionsgate urges shareholders to protect the value of their investment and continue to reject the Icahn Group’s inadequate offer by not tendering their shares and for those who have already tendered, to withdraw them.”

Icahn’s bid values Lionsgate at $825 million. He’s currently the second-largest shareholder behind Mark Rachefsky, who owns just short of 20%.

The billionaire, who owns 18.8% of Lionsgate, recently extended his hostile $7 a share offer for the sixth time with an expiration next Wednesday — dropping the requirement of a 50% support level for the offer to go through. Icahn said Friday he expects to be “a much larger shareholder” as a result of his offer.

Move came a day after Mark Cuban, who holds 5.3% of Lionsgate, indicated that he’ll tender his shares to Icahn — who said in the letter that he was hopeful that Cuban would do so. About 4% of shareholders had tendered their shares prior the Icahn’s latest extension.

Shares were down 2 cents in mid-session trading to $6.97.

Icahn criticized the board for not having planned for potential default under the terms of the company’s revolving credit facility that could be triggered once Icahn’s holdings exceed 20%. “There is no assurance that your lenders will waive such defaults,” he added.

Icahn also asserted that the Lionsgate board had ignored his attempts to discuss his offer to provide a possible bridge loan to refinance its debt, adding, “I remain confused as to why you refuse to deal with the ticking time bomb sitting in your debt documents.”

In response, Lionsgate said said it’s been in discussions with its lenders to seek a waiver or amendment to its credit facilities in order to prevent a default and was “confident” in its ability to obtain one in the near future if necessary.

“This will resolve an issue that Mr. Icahn is trying to create,” Lionsgate said. “In addition, the company and its management have looked at financing options and alternatives to ensure that shareholder value is protected and that the company will be able to continue its business despite the consequences of the Icahn Group’s offer.”

It also said it will “welcome” the opportunity to review the actual terms of a proposed bridge facility from Icahn, but added that he hasn’t disclosed those terms.

Icahn also complained bitterly in the letter about the stock price, noting that it was $4.85 on Feb. 4 before he resumed buying shares.

“This represents a decline of over 50% from where Lionsgate’s shares were trading five years ago,” he added. “And how has the board held this management team accountable for presiding over a period during which the company’s share price has been cut in half? By lavishing them with exorbitant salaries, bonuses, options, perquisites and golden parachutes! By my estimation, top management was rewarded during this period of decline with total compensation valued at well over $50 million.”

Lionsgate execs have touted their operations as being among the most efficient among studios.Lionsgate has noted that its recent earnings report showed “significant improvements” in profitability and cash flow and that its annual spending on its core businesses — $122 million for its most recent fiscal year — amounted to less than 8% of revenues.

Lionsgate mailed a lengthy letter to shareholders Friday, noting that its cash flow for fiscal 2010 ended March 31 was $128.5 million – 70 percent above initial forecasts.

“Our plan is working, our businesses are on track and we expect to continue to build our world-class media platform,” said Lionsgate toppers Jon Feltheimer and Michael Burns.

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