UPDATE 2-Lions Gate admits fault over Icahn hostile bid in SEC pact

Thu Mar 13, 2014 5:05pm EDT

By Sarah N. Lynch

WASHINGTON, March 13 (Reuters) - Lions Gate Entertainment Corp admitted on Thursday it failed to disclose to investors in 2010 the steps it took to thwart a hostile takeover bid by billionaire Carl Icahn, as part of a settlement with U.S. regulators.

Lions Gate, which produces popular movies and television shows like "The Hunger Games" and "Mad Men," also agreed to pay $7.5 million to settle the charges, the Securities and Exchange Commission said.

It is the first time in about 30 years that the SEC has brought a case against a company that is the target of a hostile tender offer, the SEC's enforcement director, Andrew Ceresney, said.

The SEC's charging documents do not cite Icahn by name, but the case clearly relates to a highly publicized spat between Icahn and Lions Gate in 2010.

The company ultimately defeated Icahn's aggressive takeover attempts.

A spokesman for Lions Gate said the money to pay the settlement was accrued during the quarter that ended Dec. 31.

The settlement marks the sixth time now that the SEC has managed to extract an admission of wrongdoing from a defendant as part of a new tougher settlement policy announced last June by SEC Chair Mary Jo White.

Ceresney told reporters in a conference call that the SEC will continue to monitor conduct in hostile tender offers.

"Given the resurgence of (merger and acquisition) activity in the market and the vital importance of disclosure obligations during a tender offer battle, we want to emphasize that the Enforcement Division intends to vigilantly police misconduct that can occur during a tender offer battle," he said.

According to the SEC, Lions Gate took steps on July 20, 2010, to put more than 16 million shares into the hands of a management-friendly director.

Those transactions were designed to bolster pro-company voting rights and dilute Icahn's 37 percent ownership in company stock.

In SEC public filings, however, the company claimed the transactions were part of previously announced plan to reduce some of its debt load, and it did not tell the market that its actions stemmed from its effort to block the takeover.

In addition, the SEC said such a debt-reduction plan had never been announced in the first place.

The "friendly director" discussed throughout the complaint is not accused of any wrongdoing by the SEC, or referenced by name.

SEC filings show that MHR Fund Management, which is controlled by Mark Rachesky, a Lions Gate director, purchased $99.7 million in notes on July 20, 2010, and converted them into approximately 16 million shares at $6.20 a share.

Those dates and amounts match up with the details of the transactions in the SEC's lawsuit.

Rachesky has since become the chairman of Lions Gate.

Spokespeople for Lions Gate and for MHR declined to comment on the references to the "friendly director" in the SEC's complaint.

Icahn's bid of July 20, 2010, for Lions Gate came at the end of a 10-day truce with the studio.

At midnight, when the truce expired, the company board met and approved a series of transactions, including exchanging convertible notes and loosening time restrictions under its insider-trading policy so that the director could ultimately convert the notes to stock.

The SEC said the company should have also obtained prior approval from its shareholders before selling the stock under certain New York Stock Exchange rules, in addition to disclosing the reasons for its actions.

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