Lionsgate sues Icahn (VAR, THR, LAT, BLOOM, TW, NYP)

By Nancy Tartaglione

On Thursday, the day before the fate of MGM was to be decided, Lionsgate slung an arrow in Carl Icahn's direction. The minimajor -- even as it is teamed with Icahn on a plan for a Lionsgate-MGM merger -- filed suit in NY accusing the activist investor of duplicity earlier this year in trying to take over MGM. Today, MGM debtholders are set to vote on whether to send MGM into bankruptcy court, leaving Spyglass Entertainment in charge.

In Lionsgate's suit, it is seeking undisclosed monetary damages, a public correction of "material" misstatements and the rescinding of all common shares that Icahn acquired after March 1.

Per Variety, the action alleges Icahn used tender offers to shareholders, proxy filings and public statements to undermine efforts by Lionsgate to acquire a stake in MGM so Icahn could acquire part of MGM's $4 billion in debt himself.

"Recent developments have revealed that Icahn was playing a double game," Lionsgate said in the suit. "While publicly denouncing a merger with MGM as foolish and MGM itself as a dinosaur with a decaying library, Icahn was buying up MGM's privately traded debt."

The suit accused Icahn of secretly plotting earlier this year to merge Lionsgate and MGM -- "but only after he had acquired a sufficiently large position in both companies at depressed prices to ensure that he maximized his own profits." Icahn is further accused in the suit of publicly opposing a merger with MGM in order to benefit himself. "He wanted to postpone it until he could buy as much of both companies as he could and thus extract for himself as much of the value stemming from the merger as possible," the action said.

According to Bloomberg, the suit also says that Icahn was aided by Mark Cuban, who sold his 5.4% stake in Lionsgate to Icahn in June for $7 a share after Lionsgate told Cuban another buyer was willing to pay more. "According to two individuals with knowledge of the arrangement, Cuban tendered his shares after receiving assurances from the Icahn Group that he would receive special consideration, perhaps related to his other business interests," Lionsgate claims. Cuban is not named in the suit.

Icahn this week has made three offers to MGM creditors to buy portions of their debt.

Meanwhile, regardless of the outcome of today's vote by MGM's creditors, Icahn is not expected to abandon the fight, says The Hollywood Reporter. On Thursday evening, The Los Angeles Times reported that Icahn had also extended the deadline for his current tender offer from Nov. 1 to Nov. 12.

"It's like playing poker against a guy who never runs out of chips," a Hollywood insider told THR of Icahn.

Almost simultaneously with the complaint's filing, Lionsgate insiders, according to THR, were stressing that its management and Icahn now are firmly allied in pushing an MGM merger.

However, says the LAT, it may be no accident that Lionsgate filed its suit now: A decision is expected imminently in a lawsuit that Icahn leveled against the studio asking a Canadian court to unwind a controversial transaction with another shareholder in July that reduced his stake from 38% to 33.5%. The minimajor may also be seeking to ensure that as Icahn's stake in MGM increases, he does not request a change in the terms of the proposed merger without informing Lionsgate shareholders.

According to a Wrap source, Icahn is also exploring his options with Spyglass. On Thursday, The Wrap says, Icahn was demanding two out of nine seats on MGM's board in addition to blocking rights that would allow him an additional measure of control over the company.

Further, The Wrap says Spyglass executives spent part of Thursday on a conference call with Icahn during which they reportedly balked at his demands for blocking rights. But, they have not ruled out some kind of scenario that brings in Lionsgate after MGM has emerged from bankruptcy.

One source close to the proceedings told The New York Post, they would vote with the Spyglass plan today, because, "Carl is simply trying to steal this company. There is no reason he can't show an interest at a later date."

In a statement, Icahn said the Lionsgate complaint was "without merit."