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Icahn Says Lions Gate Needs Changes Before MGM Deal

Billionaire Carl Icahn, an investor in two Hollywood studios, said Lions Gate Entertainment Corp. must be “cleaned up” before any merger with bankrupt Metro- Goldwyn-Mayer Inc.

MGM creditors “don’t want to do a deal with Lions Gate management,” citing steps the executives have taken “to entrench themselves,” Icahn said today in an interview.

Icahn, who owns Lions Gate stock and MGM debt, is making a hostile $7.50-a-share takeover bid for Lions Gate, distributor of the “Saw” horror movies and Tyler Perry comedies. Icahn and Lions Gate management have said they favor a merger of the two studios. They differ over who should run the combined company.

“The merger of those companies makes a lot of sense,” Icahn said. “I don’t think a deal can get done until this company is cleaned up.”

Peter Wilkes, a spokesman for Lions Gate, said the company had no comment.

In court documents filed on Dec. 3, Lions Gate reiterated allegations that Icahn was “secretly plotting” to profit from a merger, while telling investors the deal would be a “debacle.” The studio called on Icahn to correct his statements, compensate investors and pay damages for interfering with the company’s plans, according to the documents filed in U.S. District Court in New York.

Photographer: Rick Maiman/Bloomberg

Carl Icahn, billionaire investor and chairman of Icahn Enterprises LP. Close

Carl Icahn, billionaire investor and chairman of Icahn Enterprises LP.

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Photographer: Rick Maiman/Bloomberg

Carl Icahn, billionaire investor and chairman of Icahn Enterprises LP.

Separately, Lions Gate asked a judge to force Icahn to disclose the extent and value of his MGM debt holding and his trading history. The bonds will become equity under a streamlined bankruptcy plan for the Los Angeles-based studio, which filed for Chapter 11 last month.

Debt Exchange

Icahn disclosed in a Nov. 2 court filing that he owns $596 million in MGM debt, bought from November 2008 to October 2010.

Icahn is trying to nullify a July equity-for-debt exchange at Lions Gate that increased the stock held by company director Mark Rachesky by about 16 million shares to almost 29 percent. Icahn owns about 33 percent.

After the swap, Lions Gate Vice Chairman Michael Burns called Icahn to say the move put the activist investor in a “stranglehold,” Icahn said. Burns also said Gordon Crawford, a senior vice president at Capital Research & Management Co., supported Lions Gate executives, according to Icahn. Capital Research owns a 9.2 percent stake.

Chuck Freadhoff, a spokesman for Los Angeles-based Capital Research, said the company had no comment. Crawford has said he supports Lions Gate management.

Lions Gate has lost $77 million on bad investments, including the acquisition of the TV Guide cable channel, Icahn said in the interview.

‘Wasteful Overhead’

“You have to clean up this company, get rid of wasteful overhead,” Icahn said.

Icahn has proposed five nominees to the board of Vancouver- based Lions Gate, including former MGM executive Chris McGurk. The studio, run from Santa Monica, California, holds its shareholder meeting on Dec. 14.

Lions Gate fell 11 cents to $7.25 at 4 p.m. in New York Stock Exchange composite trading. The stock has gained 25 percent this year.

To contact the reporters on this story: Ronald Grover in Los Angeles at rgrover5@bloomberg.net; Michael White in Los angeles at mwhite8@bloomberg.net.

To contact the editor responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net.

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