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Blow To Icahn's Plans For Lionsgate

3/21/2009 2:00 AM Eastern

It is beginning to look like activist investor Carl Icahn's attempt to gain control of Lionsgate Entertainment is not going to be as easy as he thought.

Icahn, who has been building an equity stake in the movie studio for months and recently broke off discussions with management about obtaining up to three seats on the Lionsgate board of directors, after the parties couldn't agree on standstill provisions, may have lost one of his key allies in his attempt to take over the studio.

Former Icahn protégé and MHR Capital head Mark Rachesky said in a Securities and Exchange Commission filing March 18 that he has no intention of joining forces with Icahn or anyone else in an attempt to gain control of the studio.

Rachesky was a key component in the Icahn plan, according to some observers. With 19.7% of Lionsgate stock, Icahn would need only one or two other allies to gain a simple majority of Lionsgate shares. Icahn is the third-largest investor in Lionsgate behind Rachesky (19.7%) and Steinberg Asset Management (14.6%).

In the SEC filing, Rachesky said he has held preliminary discussions recently with Lionsgate about adding a nominee to the board of directors. Rachesky added that there were no relationships between his funds and other Lionsgate investors and that he was “principally supportive” of Lionsgate management “and their publicly stated strategies.”

The loss of Rachesky would be a blow to Icahn, but the former corporate raider said last Friday that he intends to go through with his tender offer for Lionsgate convertible debt.

While gaining control of that debt could possibly boost Icahn's stake in Lionsgate to just over 29%, it would come at a high price — between $11.50 and $14.25 per share, more than twice its March 20 close of $5.21 each.

Lionsgate reportedly has hired investment bank Morgan Stanley and law firm Wachtell Lipton Rosen & Katz as advisers.

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