Icahn Loses Legal Bid to Regain Lionsgate Stake

Billionaire investor’s attempt to overturn a debt-to-equity swap fails — his share of the company remains at 33 percent

Carl Icahn may have successfully played kingmaker to a Spyglass takeover of Metro-Goldwyn-Mayer on Friday, but his yearlong effort to wrest control of Lionsgate just hit a major setback. 

The billionaire investor lost his bid to overturn Lionsgate's debt-to-equity swap on Monday.

The Supreme Court of British Columbia dismissed Icahn's complaint and said that the transaction was legally valid. It also awarded costs to the Vancouver-based studio.

In July, Lionsgate announced the completion of a debt swap that decreased Icahn's stake in the company from nearly 38 percent to about 33.5 percent.

Following a series of transactions involving Lionsgate loyalists, those shares than passed along to Mark Rachesky, a member of the studio's board.

The takeover specialist has been was seeking to void that exchange. Monday's ruling will make it more difficult for him to build a controlling interest in the studio and oust Lionsgate's executive team.

"The Lions Gate Board’s views were reasonably held, that is, that both the deleveraging effect, its primary purpose, and the consequential effect, the dilution of the Icahn Group’s position while it was in the midst of a hostile takeover bid, were reasonably held to be in the best interests of the company," Justice John Savage wrote in his decision. 

Icahn has been trying to bolster his stake in the company through an ongoing proxy war. His latest tender offer is set to expire on Nov. 12.

In his decision, Judge Savage said that Icahn was bringing the suit forward not in his capacity as the company's largest shareholder, but as a "bitter bidder," upset over his inability to increase his stake.

Lionsgate has launched its own legal challenge to Icahn. In a suit filed Thursday in New York federal court, Lionsgate claims Icahn was "secretly plotting" to use a potential merger with MGM as a way to amass a larger slice of that  studio's $4 billion debt and a bigger stake in Lionsgate — at a discount.

With Icahn's backing, MGM creditors overwhelmingly passed Spyglass Entertainment's proposal to take over leadership of the company on Friday afternoon. In doing so, they implicitly rejected a merger with Lionsgate, although sources tell TheWrap that the studio might partner with MGM and Spyglass at a later date.

In exchange for his support, Icahn received a seat of the new company's nine person board of directors.