Icahn's Lionsgate Bid: Out of Time — and Luck

Analysis: The corporate raider will lose his play for the studio's board. Now what?

Barring a miracle, Carl Icahn will lose his bid to pad the Lionsgate board with loyalists on Tuesday.

In fact, he’ll lose badly.

“Icahn’s slate will be soundly defeated," Richard Dorfman, managing director of the investment firm Richard Alan Inc., told TheWrap. "And that means he’ll have no choice but to go back to the drawing room.”

There, he could decide to up his tender offer to as much as $9 — a bold stroke that could turn the tide. But for now, he's been checked. 

Indeed, Icahn seemed to acknowledge that his play for the Vancouver-based studio might have hit an impasse. On the heels of a New York court decision that denied his move to strip voting shares from a rival stakeholder, Icahn admitted that he wouldn’t have enough support to install his slate of rebel nominees on Lionsgate’s board.

“We recognize that it is now virtually impossible for us to prevail in the proxy contest due to the dilutive transaction in question. Nevertheless, we encourage shareholders to voice their dissatisfaction by voting for our slate of nominees,” Icahn said in a statement Monday.

A spokesperson for Icahn declined to comment and Lionsgate did not immediately respond to TheWrap's request. 

Icahn's decision to allow his latest tender offer to expire on Monday was a tacit admission that his year-long quest to take over Lionsgate had been dealt a potentially devastating setback. The best he can hope for is that one or two of his five-person slate will get elected. Ironically, Icahn could have achieved that outcome anyway based on his large stake in the company — and spared himself the costly legal fight.

“This is a man with strongly held views about how the company should be run, but it all became so public. It feels like there was so much posturing that it became difficult to end it without admitting fault. Now that Icahn may have lost the proxy battle, both sides can go back to their corners and the thing can resolve itself without either party having to admit they’re wrong,” says David Bank, an analyst with RBC Capital.

If Icahn still wants the Lionsgate prize, the investor may be forced to up his tender offer from $7.50 to between $8 to $9, some analysts predict.

“Management would be hard-pressed to ignore or reject an offer in that range,” Dorfman said.

Still, Icahn's willingness to go that high might enable him to prevail in his takeover bid. However, in doing so he would be single-handedly adding tens of millions of dollars to the studio’s price tag. Icahn could always liquidate his holdings, but that would likely mean he would take a very cold cash bath.

“It will be very difficult for him to unwind his position and take his marbles and walk away,” Dorfman said. “What he may do is wait six months and see if the studio can turn it around. If they don’t he can start raising hell again.”

The amount of money spent by Icahn on tender offers and legal challenges has some analysts puzzled. After all, though Lionsgate has had a string of mid-budget hits such as “Saw” and attractive television properties such as “Mad Men,” it’s not a media giant on the level of Time Warner. The company’s $7.00 stock has been in holding pattern for much of the past year, and Lionsgate reported net losses of $19.5 million for fiscal 2010 despite record revenue of nearly $1.6 billion.

“It hardly seems worth the effort whichever way it goes. It’s not going to change Icahn’s net worth to any degree,” Hal Vogel, chief executive officer of Vogel Capital in New York, told TheWrap.

So is this the last act of the septuagenarian corporate raider’s power play?

“I hope it means it’s the beginning of the end,” Marla Backer, an analyst at Hudson Square Research, told TheWrap. “If it’s over, I think the stock could finally begin trading on fundamentals again.”

Backer and other analysts have maintained that the uncertainty surrounding the outcome of Icahn’s hostile takeover has depressed the stock price. Backer believes that if  Icahn's cascading number of tender offers were to stop, the Lionsgate stock price could rise from $7.00 to as much as $12.00 or $13.00.

But that may be too optimistic. After all, Icahn owns a 33 percent stake in Lionsgate, making him the studio’s largest shareholder. He’s not going anywhere — at least not anytime soon.

“This guy is like Malaria. He never goes away,” Matthew Harrigan, an analyst with Wunderlich Securities, told TheWrap. “Optimally these guys band together and do something on MGM.”

It is Metro-Goldwyn-Mayer that might persuade the two long-feuding sides to finally bury the hatchet. If Lionsgate does make a bid for the lion, Icahn could be an important marriage broker.

After all, Icahn has publicly endorsed combining the two companies, and owns a substantial portion of MGM’s debt. He also successfully nabbed himself a seat on MGM’s board once it emerges from bankruptcy — a carrot for endorsing Spyglass chiefs Gary Barber and Roger Birnbaum’s bid to take the embattled studio's reins.

“One hurdle in the past has been that the difficult relationship between Icahn and Lionsgate prevented MGM’s bondholders from supporting a merger. If they put their difference aside, then it could pave the way to get something done,” Bank said.

Of course, a merger with MGM could just set the stage for a new act in Icahn’s epic battle with Lionsgate. After all, last summer when Lionsgate made an 11th hour bid for the debt-strapped MGM, Icahn pledged to support a marriage between the two companies. That ended with the two sides suing each other.

Translation? “Don’t count Icahn out,” Backer said.