Court Dismisses Carl Icahn’s Complaint Against Lionsgate
The ruling follows the New York Supreme Court similarly dismissing a bid by the Icahn Group to unwind a July 20 2010 debt-for-equity transaction that eventually sank the billionaire investor’s proxy fight with Vancouver-based Lionsgate.
Icahn has long contended that the transaction gave Mark Rachesky, a major Lionsgate investor and management ally, a key voting block that was used to defeat him at the studio’s December 2010 annual shareholders meeting.
The activist shareholder unsuccessfully argued before the British Columbia and New York courts that, under an “oppression” statute, his business expectations had been violated by the debt-for-equity swap, and that the “sham transaction”, as Icahn’s lawyers put it, should be rescinded.
The earlier British Columbia Supreme Court decision dismissed Icahn’s complaint, concluding that Lionsgate’s board of directors aimed to reduce the company’s debt after Icahn had called its borrowings “staggering” and a cause for concern.
In Icahn’s appeal of that decision, his lawyers argued that, though the “ostensible purpose” of the July 2010 transaction was to “de-leverage” the company, the real purpose was “to further entrench the Lionsgate board and management by placing a substantial number of common shares in the friendly hands of related parties.”
The activist shareholder further asserted that the debt-for-equity transaction effectively thwarted his bid to seize control of Lionsgate.
The appeal court, led by Madam Justice Newbury, with Mr. Justice Mackenzie and Tysoe concurring, in a 48-page decision concluded that the July 2010 transaction was, as Lionsgate asserted in the original Supreme Court case, a simple de-leveraging exercise.
“In all the circumstances, I would not interfere with the chambers judge’s findings regarding improper motive or ‘self-dealing’ on the part of Lionsgate's board, nor with his conclusion that the transactions were carried out in the company’s best interests,” Justice Newbury wrote.
“The dilution of Icahn’s shareholdings was an unavoidable result of the de- leveraging and Icahn was the only shareholder who took issue with the board’s approval of the impugned transactions,” the court judge added.
The British Columbia appeals court also poured water on Icahn’s claim that the debt-for-equity transaction disrupted a stand-still agreement between the two parties that he expected to be upheld.
Justice Newbury instead characterized the battle between Lionsgate and its largest shareholder as no "tea party”.
“From the board’s point of view – a point of view the chambers judge found to be reasonable in the circumstances – Lionsgate was under siege by a person who makes it his business to obtain control, or threaten to obtain control, of operating businesses, extract large amounts of money from them, and leave them vastly weakened, if not bankrupt,” the appeal court decision reads.