Company's move to augment holdings of No. 2 shareholder, Mark Rachesky, draws ire of Carl Icahn
Carl Icahn's Icahn Group said Monday that it's suing Lions Gate in New York State Supreme Court over its Friday dilution of shares.
Last week, through a debt-to-equity transaction, Lions Gate converted about $100 million of its senior subordinated notes into common shares. Those new shares ended up under the control of Mark Rachesky, who holds the second-largest stake in Lions Gate.
In the move, Lions Gate swapped $100 million in convertible bonds owned by Kornitzer Capital Management for identical bonds with a later maturity and the right to convert the bonds into common shares. Kornitzer then sold those bonds for $105.7 million to Rachesky, who immediately converted them into shares at the strike price of $6.20.
The issuance of the new shares diluted the holdings of all shareholders, including Icahn; his holdings dropped from nearly 38 percent to about 33.5 percent.
In a statement, the Icahn Group said Lions Gate engaged in "an improper defensive tactic and abusive of the rights of all other shareholders of Lions Gate."
Icahn Group siad it filed a petition Friday in the Supreme Court of British Columbia requesting "that the note exchange and the issuance of shares to a fund controlled by Mark Rachesky be set aside."
Icahn also said it planned to file suit Monday in New York State Supreme Court against Lions Gate, its board of directors, its wholly owned subsidiary, Rachesky and his investment fund, and Kornitzer and its principal John C. Kornitzer. The suit seeks "a preliminary and permanent injunction rescinding the note exchange and the issuance of shares to Mr. Rachesky's fund, prohibiting the defendants from voting their shares in any election of directors or other shareholder vote, and awarding compensatory and punitive damages to the Icahn Group," the company said.
The British Columbia Securities Commission will hold a hearing July 28 "to consider whether to grant orders against Lions Gate and Rachesky pursuant to the Commission's statutory jurisdiction to protect the public interest in the capital markets," according to the Icahn Group.