Lionsgate tries second poison pill against Carl Icahn


With dissident Carl Icahn now far and away the largest shareholder of Lionsgate Entertainment, the Board of Directors is trying again to block him from acquiring lots more shares of the TV/movie studio and distribution company. No doubt this “poison pill” measure will be tested in court, as was an earlier one which was struck down.

According to the announcement by the board, this “shareholder rights” plan addresses the legal issues which resulted in an earlier one being struck down by the courts in Canada, where Lionsgate is incorporated. With the poison bill voided, the company was unable to block Icahn from increasing his holdings from 19% to 34% of Lionsgate’s stock.

The new poison pill wouldn’t completely block Icahn from buying more shares, since it wouldn’t kick in until he reaches 38%.

UPDATE: Icahn reported in an SEC filing that he made more stock purchases in the open market and is now at 37.87% – just under the threshold for the new poison pill to kick in.

Here is what the board said about the reasoning behind the new poison pill plan:

“The Rights Plan specifically addresses circumstances in which current Canadian and U.S. securities legislation allows significant interests in a company to be established or increased through a “creeping bid” (for example, through private agreement purchases at a premium to market prices from a small number of shareholders or through exempt market purchases).  The Rights Plan is also intended to ensure that, in the context of a formal tender offer, the Board of Directors has sufficient time to explore and develop alternatives for maximizing shareholder value, to provide adequate time for competing transactions to emerge and to ensure that shareholders have an equal opportunity to participate in such a bid.

The Rights Plan encourages the acquisition of effective control of Lionsgate only through means of a “permitted bid” or a negotiated transaction that treats shareholders equally and fairly.  A permitted bid is one that, among other things, is supported by a majority of Lionsgate’s shareholders other than the person making the bid (and its affiliates, associates and joint actors), and includes bids for less than all of the outstanding shares.

Under the Rights Plan, one share purchase right will be issued and attached to each outstanding common share of Lionsgate as of the close of business on July 12, 2010 (and each share issued thereafter).  The rights will become exercisable only if a person, together with its affiliates, associates and joint actors, acquires or announces an intention to acquire beneficial ownership of shares which, when aggregated with its current holdings, total 38% or more of Lionsgate’s outstanding common shares, subject to the ability of the Board of Directors to defer the time at which the rights become exercisable.

Following the acquisition of more than 38% of the outstanding common shares by any person (and its affiliates, associates and joint actors), each right held by a person other than the acquiring person (and its affiliates, associates and joint actors) would, upon exercise, entitle the holder to purchase Lionsgate common shares at a substantial discount to their then prevailing market price.”

RBR-TVBR observation: Icahn appears to have set a floor for Lionsgate with his previous tender offers at $7.00 per share. What’s hard to understand is why some shareholders tendered at that price rather than selling for more in the open market.