Lions Gate's Poison Pill Has 61% Support So Far, Vice Chairman Burns Says
Lions Gate Entertainment Corp.’s so-called poison pill has the support of 61 percent of shareholders with about two-thirds of votes cast, Vice Chairman Michael Burns said.
Proxies representing 74.6 million shares have been submitted, Burns said yesterday in testimony to the British Columbia Securities Commission. He said 42 million shares remain to be voted before the May 4 meeting.
Investor Carl Icahn, who has made a hostile tender offer for the independent film studio and owns 22 million shares, is asking the commission to void the poison pill. The tally so far illustrates the obstacles to Icahn gaining investor support for his effort to void the shareholder-rights plan, which would make his $7 a share bid more costly.
“There’ll probably be a lot of unhappy shareholders” if the poison pill is allowed to stay because Icahn probably won’t extend the offer, Keith Schaitkin, deputy general counsel at Icahn Enterprises Ltd. Partnership, testified before the three- member panel of the commission. “I think Mr. Icahn is opposed to poison pills in all their forms.”
Icahn argues the poison pill was enacted by the board without prior shareholder approval. A victory would make it easier for Icahn to attract votes for his tender offer, which expires April 30. A decision favoring the company would bolster Lions Gate’s defense by allowing the vote to count.
The pill, which entitles shareholders to buy more stock at a discount, was implemented by Lions Gate’s board as a “tactical” move against Icahn’s bid, said Mark Gelowitz, Icahn’s lawyer.
Securities regulators across Canada, including British Columbia, have made it clear that rights plans adopted without prior shareholder approval won’t generally be found in the best interests of the shareholders, Gelowitz told the panel.
“The time comes eventually for any poison pill when it must go,” Gelowitz said. “It cannot be used simply as a means to block a bid. It can’t be used to just say ‘no.’”
Icahn, who owns almost 19 percent of Lions Gate, is offering about $826 million for the maker of the “Saw” and “Tyler Perry” movies.
“That is a bad price,” Burns testified.
Icahn can extend his offer past the voting day because he still hasn’t won approval for the purchase from the Canadian government, said Jessica Kimmel, Lions Gate’s lawyer.
Icahn deliberately set a deadline two business days before the scheduled vote in a bid to pre-empt it, Kimmel told the panel.
A ruling in Icahn’s favor will send a message to all hostile bidders that it’s an acceptable practice in Canada, Kimmel said.
The acquisition must be approved by Canadian Heritage, a government department that oversees the country’s arts and cultural industries.
“We’re in advanced discussions with Heritage Canada,” Schaitkin said. “They’re going very well.”
Icahn, the 74-year-old investor, is up against board members and allies who control more than 30 percent of Lions Gate shares, according to data compiled by Bloomberg.
Mark Rachesky, co-founder of MHR Fund Management LLC, is a former Icahn associate who joined the board in July. He holds 23.2 million shares, or 19.7 percent, and said in a March 2009 filing that he is “principally supportive” of management.
Los Angeles-based Capital Group Cos. owns 12.3 million shares, or 10.4 percent, and fund manager Gordon Crawford called Lions Gate a “very well-run company” in an April 6 story in the Los Angeles Times. “All Carl is doing is running up legal bills, distracting management and doing nothing productive for shareholders,” the newspaper quoted Crawford as saying.
The studio, run from Santa Monica, California, amended the poison pill on April 23, allowing Icahn to vote his stake against the plan at the May 4 shareholder meeting, on the recommendation of a board committee and company advisers.
Lions Gate fell 10 cents, or 1.4 percent, to $6.89 at 10:12 a.m. in New York Stock Exchange composite trading. The shares had gained 20 percent this year before today.
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