Lions Gate Entertainment Corp. is a film production company that originated in Vancouver and is best known for producing the “Saw” horror films and the popular television drama “Mad Men.” Recently however it has been involved in its own high stakes corporate drama that has been playing out in B.C. Supreme Court.
Reminiscent of the movie “Wall Street,” the current drama involves attempts by controversial American financier and corporate raider Carl Icahn to acquire control of Lions Gate. In March 2010, Icahn, who was already a significant shareholder in Lions Gate, issued a tender offer as part of a hostile takeover bid for additional shares that would give him a majority stake in the company. Lions Gate’s board of directors recommended against the bid and adopted a shareholders rights plan, or “poison pill” to thwart Icahn’s efforts. On April 27, 2010, the B.C. Securities Commission quashed the shareholders rights plan, which decision was subsequently upheld by the Court of Appeal on May 7, 2010 (2010 BCCA 231). In the mean time, Icahn had extended the offer to include all of the outstanding shares of Lions Gate and had upped the offer price, however, the Lions Gate board continued to oppose the takeover.
Icahn’s initial tender offer expired on June 20, 2010 and a second tender offer was issued on July 20, 2010. In between those dates, Lions Gate entered into a series of transactions that had the effect of converting approximately $110 million of Lions Gate debt into equity, thereby deleveraging Lions Gate but also significantly diluting Icahn’s holdings. Icahn went to court to challenge the transactions as being oppressive and unfairly prejudicial within the meaning of section 227 of the B.C. Business Corporations Act.
On November 1, 2010, Justice Savage of the B.C. Supreme Court rejected Icahn’s Petition seeking to set aside the transactions (2010 BCSC 1547). Essentially, Justice Savage held that the principal objective of the transactions was to deleverage Lions Gate which was in the company’s best interest and that therefore the board had acted reasonably. He also found that Icahn brought the proceeding not as an oppressed shareholder but rather as a bitter bidder and that Icahn could not therefore avail himself of the oppression provisions of the Act.
The end to this drama is yet to be written. Icahn has indicated that he intends to appeal Justice Savage’s decision and he has extended his current offer to purchase all of Lions Gates’ shares to November 22, 2010. However, the financial press is also reporting that Icahn and Lions Gate are in discussions to resolve the litigation and to jointly pursue a merger of Lions Gate with the iconic U.S. film studio Metro-Goldwyn-Mayer (MGM) once MGM emerges from bankruptcy. Stay tuned.