Lions Gate Poison Pill Annulled by Canadian Regulator

Michael Burns, of Lions Gate Entertainment Corp.
Michael Burns, vice chairman of Lions Gate Entertainment Corp., speaks during the Gabelli & Co. 2nd Annual Digital Cinema and Movie Conference at the Harvard Club in New York, on March 11, 2010. Photographer: Peter Foley/Bloomberg

Lions Gate Entertainment Corp.’s poison pill, designed to deter the hostile takeover bid by U.S. investor Carl Icahn, was voided by Canadian regulators.

Lions Gate shareholders were scheduled to vote on the poison pill on May 4. British Columbia Securities Commission Panel Chairman Brent Aitken, who issued the ruling today, said reasons for the decision would follow.

The decision removes one impediment to Icahn’s $7-a-share tender offer, which values the company at $826 million. The pill would have made a takeover more expensive. Voting so far on the shareholder rights plan was running 61 percent in favor, Vice Chairman Michael Burns testified yesterday before the commission in Vancouver.

If Icahn doesn’t attract enough votes for his tender offer by the April 30 deadline, he may extend it, Icahn’s deputy counsel, Keith Schaitkin, testified yesterday.

“Icahn goes forward and tries to buy the firm,” said Alan Gould, an analyst with Soleil Securities in New York. “To get over 50 percent of the company, he clearly has to go over $7 a share.”

Gould rates the shares “buy” and doesn’t own them.

Icahn has made it clear he wants to gain control of the company by acquiring more than 50 percent of the shares, said his lawyer, Mark Gelowitz, in his closing statement to the commission today.

Icahn’s Shares

“If you wanted to buy 29 percent of the company, you wouldn’t offer to buy all the shares,” he said. “That’s a pretty expensive way to get 29 percent.”

Icahn owns almost 19 percent of Lions Gate, the maker of the “Saw” and “Tyler Perry” movies. The poison pill would have allowed shareholders to buy more stock at a discount if Icahn gained a 20 percent stake in the company.

Lions Gate, based in Vancouver, urged shareholders not to sell their stock and said it may appeal the commission’s ruling. The vote will go ahead on May 4, the company, which operates from Santa Monica, California, said in a statement.

Icahn said in a separate statement that he was “gratified” by the commission’s ruling.

The panel’s decision was issued after a 1 1/2 day hearing during which Icahn’s lawyers urged the commission to void the poison pill and Lions Gate’s lawyer pressed for a ruling allowing the shareholder vote to go ahead.

The panel followed recommendations from its own lawyers, who said the poison pill would deprive the shareholders from responding to a legal offer.

The company should make sure the defensive plan is voted on before the bid expires, said Shawn McColm, a lawyer for the commission. “To do otherwise adds another defensive tactic” for companies, he told the panel today.

‘Dangerous’ Precedent

The decision sets a “dangerous” precedent that will allow hostile bidders to set deadlines before votes on poison pills and deprive stockholders of a say, said Jessica Kimmel, Lions Gate’s lawyer.

She said Icahn is asking to take away “the free and unconstrained voting environment.”

Lions Gate fell 37 cents, or 5.3 percent, to $6.62 in New York Stock Exchange composite trading, then rose as high as $7.07 in after-hours trading. The shares had gained 20 percent this year before today.

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