Icahn to prosecute Lions Gate exchange challenge to final judgment

By Caroline Salls

Pittsburgh, Dec. 23 - The Icahn Group has accepted an invitation from the New York State Supreme Court to prosecute a case related to Icahn's challenge of a July Lions Gate Entertainment note exchange to final judgment after none of Icahn's board of directors nominees were elected at a recent Lions Gate shareholders meeting, according to a letter filed by counsel of record Joseph DiBenedetto.

If the court would have granted Icahn's motion for an injunction barring the Rachesky defendants from voting the 16.24 million Lions Gate shares they purchased on July 20 and satisfied the only condition of an Icahn tender offer, DiBenedetto said three of Icahn's director nominees would have been elected.

DiBenedetto said none of Icahn's nominees were elected, despite recommendations from all three major independent proxy advisory firms to withhold support from at least part of the slate of directors recommended by Lions Gate management.

"As a result, Icahn remains a 33% shareholder - with over a quarter of a billion dollars sunk - in an underperforming company whose management has entrenched itself by violating the standstill agreement," DiBenedetto said in his letter to the court.

DiBenedetto said Icahn is requesting a Jan. 5 preliminary conference to set a trial date for late May or early June.

Case history

As previously reported, The Icahn Group's challenge of Lions Gate's private exchange of convertible notes held by Kornitzer Capital Management, Inc. was dismissed by the British Columbia Supreme Court in November.

Lions Gate issued new notes on July 20 in exchange for $36,009,000 of 3.625% convertible senior subordinated notes due 2025 and $63,709,000 of 2.9375% convertible senior subordinated notes due 2024.

Kornitzer received a principal amount of new notes equal to the principal amount of the old notes exchanged, and the new notes were converted into 16,236,306 shares of common stock of parent company Lions Gate Entertainment Corp.

According to a news release from the Icahn Group, Kornitzer sold the new notes to an investment fund controlled by Mark Rachesky, a director and shareholder of Lions Gate, before they were converted, and the new shares give Rachesky a 28.9% ownership of the company.

The exchange was made on the same day that Carl C. Icahn and some of his affiliated entities announced a tender offer to acquire Lions Gate's common stock for $6.50 per share.

In addition, Icahn sought a preliminary and permanent injunction in New York State Supreme Court rescinding the note exchange and the issuance of shares to Rachesky's fund, prohibiting the defendants from voting their shares in any election of directors or other shareholder vote and awarding compensatory and punitive damages to the Icahn Group.

Lions Gate Entertainment Inc. is a Santa Monica, Calif.-based subsidiary of Lions Gate Entertainment Corp., which is a filmed entertainment studio with headquarters in Vancouver, B.C.

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