March 12 (Bloomberg) -- Lions Gate Entertainment Corp. and billionaire Carl Icahn ended discussions on granting the investor board seats after the company sought to limit his influence at the independent film studio.

“Agreement could not be reached concerning certain aspects of the standstill agreement that Lions Gate demanded,” Icahn said yesterday in an e-mailed statement.

The announcement raises the risk of a proxy fight with Icahn, who has increased his stake to 14.5 percent from about 3.7 percent since October. He said in a regulatory filing last month that he may seek to elect directors, either by expanding the board or removing others.

Icahn, 73, made the announcement after U.S. markets closed yesterday. Lions Gate, run from Santa Monica, California, fell 4 cents to $4.92 at 9:36 a.m. in New York Stock Exchange composite trading. The stock lost 9.8 percent this year before today.

Lions Gate’s largest investor, MHR Fund Management LLC, is run by former Icahn aide Mark Rachesky.

MHR, with 19 percent, declared itself a passive investor in a March 9 regulatory filing, saying the shares weren’t acquired for the purpose of “changing or influencing the control” of Lions Gate. Icahn is the third-largest stockholder.

Steinberg Asset Management LLC is the second largest, with 17.3 million shares, or about 15 percent.

Three Weeks of Talks

Lions Gate directors had been in talks with Icahn for three weeks, the studio said in a statement.

“The board ultimately concluded that it could not meet his requests and continue to serve the best interests of all of our shareholders,” the company said.

Icahn’s office didn’t respond to a request for an interview. In February, he notified Biogen Idec Inc. that he planned to nominate four directors, his second run at control of the Cambridge, Massachusetts-based biotechnology company.

One potential deterrent at Lions Gate is the company’s $340 million secured revolving loan renewed in July 2008. Under certain conditions, a change in control of the board or the removal of named executives could trigger a default, according to company filings. The five-year facility’s interest rate is Libor plus 2.25 percent.

In the loan agreement, four Lions Gate executives including Co-Chairman and Chief Executive Jon Feltheimer and Vice Chairman Michael Burns are listed as “key managers.” The departure of three of the four could trigger a default.

The studio, distributor of Tyler Perry’s “Madea” comedies, is trying to lower costs after reporting a $93.4 million third-quarter loss and losing investors in three films scheduled for release this quarter.

‘Spirit,’ ‘Madea’

Revenue from films released in the three months ended Dec. 31, including “The Spirit,” “Punisher: War Zone” and “Transporter 3,” fell short of sales generated a year earlier, Lions Gate said last month.

Investors in Pride Pictures LLC, a film financing fund that had helped pay for previous movies, declined to participate in three pictures released this quarter, a move that will raise costs, the company said.

Lions Gate’s fortunes improved last month with the release of “Tyler Perry’s Madea Goes to Jail.” The film spent two weeks in first place at U.S. and Canadian cinemas. As of March 8, it had taken in $76.2 million since it opened on Feb. 20, according to Media by Numbers LLC.

To contact the reporter on this story: Michael White in Los Angeles at Mwhite8@bloomberg.net.

Last Updated: March 12, 2009 09:41 EDT