March 19, 2012 / 11:00 AM / 6 years ago

"Hunger Games" shows up Icahn's missed opportunity

LOS ANGELES, March 19 (Reuters) - ”The Hunger Games, a post-apocalyptic movie about children forced into a fight to the death, is expected to be one of the year’s biggest hits. That would deliver a massive windfall for Lions Gate Entertainment .

But Carl Icahn, for one, may give the movie a pass. The 76-year old activist investor lost out on a $273 million profit when he sold his 33 percent of Lions Gate last year after waging an unsuccessful two-year takeover battle.

The billionaire decided on Aug. 30, 2011 to sell his 44 million shares for $7 apiece in separate deals to Lions Gate board member Mark Rachesky, and via a public offering in October.

Boosted by “Hunger Games” anticipation, those shares have sky-rocketed to $13.21 apiece as of its March 16 close. The movie is expected to open with ticket sales of $70 million over its first weekend, according to industry tracking.

“We made $2.5 billion last year for our investors,” Icahn told Reuters in a telephone interview. “You never want to get out early, but we did pretty well.”

Icahn said he “made a few dollars” on his Lions gate stock, for which he received $309 million. In a statement at the time of the transaction, the studio said the price “was approximately the same as Icahn’s cost basis.”

Lions Gate had no comment beyond its statement.

Icahn, who made his name taking stakes and then forcing changes by management, said he sold because the Lions Gate holding didn’t pencil out for him and his team.

“We’re numbers guys and we added up all the liabilities and the assets and we just couldn’t see it going much higher than where it was,” he said. “The market has to be valuing Hunger Games at $1.5 billion for it to be $14.”

At the time Icahn got out of Lions Gate, investors thought “Lions Gate” would gross about $100 million in ticket sales, said James Marsh, a Piper Jaffray analyst who follows the stock.

“Now it’s looking like a $300 million film, and that could make it a $2 billion franchise.”

Piper Jaffray was underwriter for Icahn’s sale, according to filings.

With 33 percent of Lion Gates stock, Icahn was unable to force changes he wanted to make in the company, including scaling back its overhead and selling off assets.

The roadblock was that 38 percent was held by allies of the management: fund manager Capital Research Global Investors, and Rachesky, who created his own investment funds in 1996 after working as Icahn’s lieutenant for two years.

“There was never an easy way for him to get out of the stock at that point,” said Marsh. “He was blocked from doing what he does. If he had stayed in, he risked a style drift. Investors don’t like when you don’t stick to your strategy.”

After Icahn’s sale, the stock began to climb and by Dec. 30 was trading at $8.32. It got another bump in early January, when Lions Gate bought Summit Entertainment in a $421 million deal for stock and cash, a move that gave the company access to Summit’s “Twilight” vampire movies.

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