* Lions Gate's top shareholder supports management
* Mark Rachesky's MHR Fund seeking board seat
* Icahn lawyer: note tender docs to be available Friday
(Adds analyst comment)
By Sue Zeidler
LOS ANGELES, March 18 Lions Gate Entertainment
Corp's LGF.N largest investor, Mark Rachesky, has thrown his
support behind the Hollywood film and television studio as it
tries to fend off advances from his former boss, Carl Icahn.
Rachesky's MHR Fund Management LLC, which controls a 19.999
percent stake in Lions Gate, said in a regulatory filing on
Wednesday it is "principally supportive" of the media company's
"management and their publicly stated strategies."
The fund said it has had preliminary talks with Lions Gate
about nominating a candidate to the studio's board. MHR added
it may also talk to Lions Gate about "matters that may
facilitate implementation of MHR's investment strategies and
Wall Street had been wondering whether Rachesky, a former
investment chief to Icahn, would team up with the billionaire
investor against Lions Gate, which produces the popular "Mad
Men" cable TV show and "Saw" film franchise.
Doug Creutz, analyst with Cowen & Co, said the move by
Rachesky appeared to be a blow to Icahn's efforts.
"It sounds like Rachesky's taking management's side, which
was not necessarily expected. I think people figured he was
working with Icahn, but if he's not, it significantly weakens
Icahn's hand," Creutz said.
Icahn controls 14.5 percent of Lions Gate shares and is
seeking to boost his influence over the company by offering to
buy $325 million worth of its convertible notes.
"We expect our documents for the tender offer to become
available to noteholders on Friday," said Keith Schaitkin, an
attorney for Icahn, declining further comment.
If Icahn were to successfully buy the debt and convert it
all into equity, his stake would double to about 28 percent to
29 percent. But analysts were skeptical Icahn would make that
costly move because the conversion prices of the notes are far
above Lions Gate's share price.
Icahn has criticized the studio's high expenses and its
acquisition of the TV Guide cable channel and has threatened to
mount a proxy battle and may call a special shareholders
meeting to elect board directors.
"Icahn can still call a shareholders meeting, but his stake
is smaller than Rachesky's and these sort of proxy fights are
typically difficult to wage. Unless you have an overwhelming
amount of shares at your disposal, they rarely succeed," said
Lions Gate has hired an advisory team to launch a defense
against Icahn. [ID:nN17296471]
Talks between Icahn and Lions Gate broke down last week
after they clashed over certain aspects of a standstill
agreement the studio demanded of the billionaire investor
before giving him board seats.
If an investor's stake in Lions Gate exceeds 20 percent, it
could trigger a change in control, which in turn could create
problems with Lions Gate's credit facility under existing
The studio's library of more than 8,000 films and 4,000 TV
shows is considered its most valuable asset, generating $275
million in annual revenue.
Shares of Lions Gate rose 9 cents, or 1.7 percent, to $5.40
a share in afternoon trading on the New York Stock Exchange.
(Reporting by Franklin Paul and Tiffany Wu; Editing by Tim
Dobbyn, Bernard Orr)