TORONTO — U.S. billionaire Carl Icahn is suing Lions Gate Entertainment Corp., alleging it used “scorched earth tactics” in an effort to prevent him from taking over the film company.
Lawyers representing Icahn filed documents in a New York court on Monday just days after putting a stop to a short-lived truce between the two sides.
Icahn is seeking to reverse a debt-for-equity swap between Lions Gate and its board member Mark Rachesky. Named in the suit are Lions Gate, its board, Kornitzer Capital Management Inc., Rachesky and Rachesky’s investment fund.
Icahn resumed his hostile bid for the independent movie company last week, and the studio followed by making a debt-to-equity conversion that diluted Icahn’s stake and boosted that of a board member.
He has already petitioned the Supreme Court of British Columbia to set aside the transaction.
Lions Gate is based in Canada, but operates out of Santa Monica, Calif. It is known for high-profile films like the Saw horror franchise.
In the court filings made Monday, Icahn launched a scathing review of Lions Gate’s management and specifically the agreement with Rachesky.
“The sham transaction is the antithesis of responsible corporate governance; indeed, it belongs more properly in the script for a new reality TV program, ’Mad Management,”’ he said in the documents.
A spokesman for Lions Gate declined to comment on the filings.
The latest round of fiery words comes after Icahn renewed his bid for Lions Gate at US$6.50 per share, an offer that’s 50 cents lower than his previous bid. It’s still above an agreement made with Rachesky that’s worth $6.20 per share.
“We view this transaction as a prime example of scorched earth tactics executed with other people’s money — in this case, the money of Lions Gate shareholders — and they will be met with an equally forceful response,” Icahn said in a statement.
Icahn criticized the company’s decision to sell the shares at the discounted price after previously telling shareholders that its stock was worth $8.85 each.
Lions Gate swapped $100 million in convertible bonds owned by Kornitzer Capital for bonds with a later maturity and the right of conversion into common shares at $6.20 per share.
Kornitzer then sold those bonds for $105.7 million to Rachesky, who converted them into shares.
As a result, Icahn said his stake dipped to 33 per cent from about 37.9 per cent, while Rachesky’s holdings increased to 28.9 per cent from 19.9 per cent.
Rachesky serves on Lions Gate’s strategic advisory committee and has been on the company’s board for nearly 11 months.
“Unlike many other shareholders, whom the Lions Gate directors seem to cynically assume must either suffer the board’s rapacious tactics in silence or sell their shares, I am fortunate enough to have significant resources with which to protect my interests,” he said. “I will spare no expense in holding the culpable parties responsible for their behaviour.”