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Lionsgate Shareholders Snub Carl Icahn, Elect Own Board

Company founder Frank Giustra part of team elected at Tuesday's annual meeting.

UPDATED: Carl Icahn and his slate of board nominees were defeated Tuesday when Lionsgate shareholders instead elected all of the company’s nominees, including founder Frank Giustra.

Although the outcome of the vote was predictable, Wall Street reacted negatively and Lionsgate shares fell 6 percent Tuesday to $6.64, building on Monday’s 5 percent decline.

The stock’s fall in the past two days is vindication of sorts for Icahn’s claim that shareholders would suffer — at least in the near term — if his attempts at a hostile takeover were to fail. He allowed his offer to acquire shares at $7.50 apiece to expire Monday.

While Tuesday’s vote was a meaningful setback in Icahn’s bid to get allies elected to the board and eventually acquiring control of the mini-major, the handwriting was on the wall in July when investor Mark Rachesky swapped debt for equity and diluted Icahn’s position.

After Rachesky’s swap, Icahn’s stake in Lionsgate fell from 38 percent to 34 percent. While still the biggest shareholder, Icahn knew he did not have enough to successfully wage a proxy battle, so he tried, unsuccessfully, to have the courts block Rachesky from voting those shares he acquired this summer.

All the drama leading up to Tuesday’s vote at the SLS Hotel in Los Angeles was noticeably absent at the shareholders meeting. While speaking to reporters afterward, vice chairman Michael Burns even apologized for things not being as “magical” as some might have expected.

Icahn, who was not at the meeting, isn’t expected to end his activist ways, though he didn’t return phone calls Tuesday that sought clarification on what his next move would be.

“I don’t know what Carl’s thinking,” Burns said after the meeting. “He has my home phone number.”

Icahn’s unsuccessful slate of board nominees consisted of former Overture Films CEO Chris McGurk, Canadian TV producer Jay Firestone, former Bertelsmann Entertainment executive Michael Dornemann, Princeton economics professor Harold Shapiro and president of Icahn Enterprises Daniel Ninivaggi.

Icahn on Tuesday said in a news release that he is not done pursuing the legality of the Rachesky transaction, which he said “subverted” the voting process. The matter goes to a full trial in the next several months.

“This whole situation is a very sad commentary on the state of corporate governance today,” Icahn said in his statement.

Much of Icahn’s beef with Lionsgate management has been that the TV and film company hasn’t been thrifty enough, but CEO Jon Feltheimer defended himself against that charge Tuesday.

“Regardless of what Carl says, we’re cheap,” he said. “We hate throwing money away on proxy fights.”

Icahn also didn’t like the idea that Lionsgate had stated publicly it was interested in acquiring MGM. On Tuesday, though, pursuing such a merger didn’t seem a priority. “For the moment, that ship has sailed,” Burns said.

Lionsgate shareholders re-elected 11 of 12 board members Tuesday. Brian Tobin, a former Canadian politician, did not stand for re-election, and the company ran in his place Giustra, who founded the company in 1997 and ran it until Feltheimer became CEO in 2000. Giustra remained board chairman until 2003.