Lions Gate acts to fend off Icahn

Lions Gate Entertainment Corp. has nominated its largest shareholder, Mark H. Rachesky, to its 12-member board as a defensive measure against activist investor Carl Icahn, who has threatened to wage a proxy war against the movie and television studio. Rachesky, a former associate of Icahn’s, would replace board member Mark Amin.

Unlike Icahn, Rachesky, whose New York-based MHR Fund Management owns 19.8% of the company’s common stock, has been a strong supporter of Lions Gate management. Icahn, on the other hand, has been highly critical of the studio’s top executives for overspending. Icahn is Lions Gate’s second-largest shareholder, with holdings of about 17%.

The billionaire investor has been steadily increasing his stake in Lions Gate and had been in talks this year about gaining several board seats. But those discussions fell apart over issues that included management’s refusal to give him assurances that a standstill agreement would also be applied to other shareholders seeking board seats.

In March, Rachesky changed his investor status to “active” from “passive” and said in a regulatory filing that he might seek a board seat.

Now that Rachesky has been nominated, it would seem likely that Icahn would move swiftly to put up his own slate of directors before Lions Gate’s annual shareholder meeting in mid-September.

Lions Gate said it would announce the remainder of its board slate in the coming weeks.

Rachesky had worked as a chief investment strategist for Icahn from 1990 to 1996 before leaving to form his own investment firm.

According to Rachesky’s biography from Loral Space & Communications, a satellite company on which he serves as a nonexecutive chairman, MHR specializes in “distressed and deeply undervalued middle-market companies.” Rachesky has been a major shareholder in Lions Gate for more than five years.

In a prepared statement, the press-averse Rachesky said, “I look forward to joining the Lions Gate board of directors and assisting management in its mission to continue building shareholder value.”

He also said that MHR would support management’s slate of board nominees at the shareholder meeting.

Lions Gate Vice Chairman Michael Burns said in an interview that he and company Chief Executive Jon Feltheimer were happy to have a savvy investor like Rachesky to be a strong independent voice on the board.

“Mark is a very smart guy, and we really want to hear what he has to say,” Burns said. “Eight or nine years ago when our stock was at $2 a share, it was virtually impossible to get someone to even take a meeting with us. Now we find ourselves with some of the most sophisticated investors on Wall Street including Mark, Carl Icahn and Gordy Crawford,” whose firm, Capital Research & Management, owns 9.5%.

Burns said Rachesky also brought expertise in wireless and digital media, which could help Lions Gate further diversify its film and TV business. Besides his role in Loral, Rachesky is chairman of Leap Wireless International of San Diego.

“We’re very interested in his participation in the world of satellite and cellular, which are other potential distribution opportunities for us,” Burns said.

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