A raider at the Lionsgate?

Carl Icahn's latest move has insiders, analysts talking

When Carl Icahn becomes one of your company's biggest shareholders, speculation over its future heats up pretty quickly.

Clarity over the maverick moneyman's motives can take longer.

"Where there's smoke, there's usually ... smoke," a Lionsgate wag cracked Tuesday.

Company execs suggested Icahn's recent share buys simply mean the oft-combative investor recognizes an undervalued stock when he sees ones -- and may have opinions over how to raise its value.

"My sense is that with a bigger stake he's going to be interested in discussing with us smart moves that he considers to be of benefit for shareholders," Lionsgate vice chairman Michael Burns said.

Icahn may have "a couple of things on his radar" as potential acquisition targets, Burns added. He declined to say what those might be.

When news circulated Monday that Icahn had acquired a 9.2% stake in Lionsgate -- long the subject of takeover speculation -- some wondered if he was swooping in to hang a for-sale sign on the minimajor, tough market conditions notwithstanding. Actually, Icahn began quietly buying into Lionsgate back in 2006 and had accumulated a 3.7% stake even before his recent share purchases triggered regulatory disclosures.

Meantime, Burns' market losses turned out to be Icahn's gain.

The Lionsgate exec lost almost half of his common shares as a result of a forced liquidation by Merrill Lynch on Oct. 10, unintentionally helping Icahn amass additional holdings when the big chunk of stock came onto the market.

Regulatory filings show Merrill sold about 700,000 of Burns' shares for a total $4 million after a margin call was triggered by the company's share price dipping below $6. Burns had pledged the shares as collateral on a ranch that he owns near Big Sur.

Burns retains 689,000 shares in his company and significant options on others, with his remaining stake amounting to a 1.25% interest in Lionsgate. The company's biggest shareholders remain Steinberg Asset Management and MHR Funds Management, each of which holds a 15% stake.

Lionsgate co-chairman and CEO Jon Feltheimer -- who, like Burns, recently inked a multiyear exec-contract extension -- has a roughly 1.5% stake in the company. Feltheimer and Burns work from corporate offices in Santa Monica, but Lionsgate remains headquartered in Vancouver; its shares trade on the New York Stock Exchange. The company's non-operational chairman, Canadian businessman Harald Ludwig, has less than a 1% stake in Lionsgate.

Lionsgate shares hit a four-year trading low of $5.59 on Oct. 10. The shares have rebounded but were off six cents at $7.31 on Tuesday.



Lionsgate stock was tugged down with the rest of the media/entertainment sector, but it fell less and may well rebound more quickly thanks to a clean balance sheet and positive growth prospects. Several analysts have had "buy," "strong buy" or "outperform" ratings on the stock for months.

Miller Tabak's David Joyce reiterated its "buy" recommendation Tuesday with a 12-month target share price of $10. Lionsgate's reaching anything like that share price within the next year would reap a pretty profit for Icahn.

But Icahn being Icahn, speculation of a more intriguing end game will continue. And Lionsgate has been something of a lightning rod for speculation.

For starters, there's the notion that studio companies need to be vertically integrated, owning both production and multiplatform distribution assets. Lionsgate is primarily a film company, so it's long been considered a prime candidate for eventual takeover.

In the absence of such a takeover, there's been talk that Lionsgate will simply continue to size up its film operations through its own acquisitions.

One of the sexiest scenarios trotted out would have Lionsgate merging with MGM -- yet another studio parent company lacking sufficient vertical integration -- to form a not-so-mini minimajor with a library to die for. Ex-Lionsgate co-chairman Harry Sloan now runs MGM.

Lionsgate has a rich film catalog thanks to its 2003 acquisition of Artisan Entertainment. It effectively grafted a U.K. division onto its film operations when it acquired Redbus in 2005, TV syndicator Debmar-Mercury in 2006 and film indie Mandate Pictures in 2007.

Lionsgate has no senior corporate debt, long-term bonds totaling $325 million, cash reserves of $250 million and an untapped $340 million credit facility from JPMorgan Securities. So speculation over Icahn's motives aside, execs are feeling bullish about their prospects over the coming year, including a "Saw V" horror sequel likely to figure near the top of the boxoffice chart this weekend.

"It's business as usual, and we're happy to have a world-class investor as a larger shareholder," Burns said.

Carl DiOrio reported from Los Angeles; Etan Vlessing reported from Toronto.
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