Activist investor Carl Icahn sent a letter to the board of directors of his latest takeover target, Lionsgate, on Friday, threatening to tip the company into bankruptcy if it didn't go along with him.
Icahn, who holds 19 percent of Lionsgate's outstanding shares and likely will be tendered another 5.4 percent by Mark Cuban and about 4 percent by individual investors, said he had enough shares to trigger "cross-defaults" on Lionsgate's outstanding debt, which he put at "over $472 million of bond indebtedness."
Warning that Lionsgate may not have enough money to repay its debt all at once, Icahn said that could send the company into voluntary bankruptcy.
(Read also: Cuban, Icahn Play Cat and Mouse With Lionsgate)
Icahn's current $7-per-share offer closes June 16. He said there was a two-week window following that date during which share tenders would be accepted.
Lionsgate issued a statement early Friday afternoon addressing Icahn's letter. It said, "As disclosed in the Company’s Schedule 14D-9 filed with the SEC on June 4, 2010, Lionsgate has been in discussions with its lenders to seek a waiver or amendment to its credit facilities in order to prevent an event of default and is confident in its ability to obtain one in the near future if necessary. This will resolve an issue that Mr. Icahn is trying to create."
Icahn described himself as "truly mystified" by the directors' actions and "confused as to why you refuse to deal with the ticking time bomb sitting in your debt documents."
He also is threatening to replace the board: "As a shareholder, I'm forced to ask how much longer this board of directors will allow the party in the management suite to continue. How long can management continue to claim 'record performance' while cash flow remains anemic and the stock price remains in decline? Since the board is clearly unwilling to tell the Emperor he wears no clothes, it is left up to the shareholders to take action."
Icahn reiterated that he stands ready to start talks with the board about a bridge credit facility. And he declared, again, "We will not sit idly by if you attempt to employ inappropriate defensive tactics."
Lionsgate's statement addressed the question of the bridge facility: "While the Company continues to engage in discussions with its lenders, it will welcome the opportunity to review the actual terms of a proposed bridge facility from Mr. Icahn. Lionsgate formally requests that Mr. Icahn disclose those terms to the Company and to the public." (The company later Friday also released an upbeat statement about its 2010 fiscal year.)
The full text of Icahn's letter, dated June 11, follows:
Dear Members of the Board:
As you know, the offer by my affiliates to purchase any and all of Lions Gate's outstanding common shares for $7.00 in cash per share is expected to close next Wednesday, June 16th. As I have previously announced, we will not be extending the offer again. I am writing to express my grave concern as a shareholder – and, I believe, as a soon to be much larger shareholder – over your apparent ambivalence regarding Lions Gate's fate.
