MANHATTAN (CN) - Lions Gate Entertainment claims Carl Icahn tortiously interfered with its plan to merge with MGM, as a tactic to depress share prices and stall the deal until Icahn could buy up shares in both companies to benefit from both sides of the transaction. "By publicly criticizing a Lions Gate-MGM merger and bullying potential merger partners while failing to disclose his own purchases of privately traded MGM debt, Icahn kept Lions Gate shareholders in the dark about the ultimate likelihood and value of a merger between Lions Gate and another studio and misleadingly induced them to tender their shares into his inadequate tender offer," according to the federal complaint.
British Columbia-based Lions Gate is the most commercially successful independent movie and TV production company there is, according to industry watchers. It recent hits include the Emmy award-winning TV show "Mad Men" and the Academy award-winning film "Precious: Based on the Novel 'Push' by Sapphire."
Calling Icahn a "corporate raider," Lions Gate says the financier bought up the company's stock on the pretense that the company was making poor decisions. Icahn likened the merger idea to "tying two one-legged men together," according to the complaint.
"Icahn based his campaign for control on the charge that Lions Gate's management was imprudently pursuing merger transactions, above all what he characterized as a 'misguided strategy' of acquiring legendary film studio Metro-Goldwyn-Meyer Inc. ('MGM') that would end in 'oblivion ' and 'bankruptcy,'" according to the complaint.
"While publicly denouncing a merger with MGM as foolish and MGM itself as a dinosaur with a decaying library, Icahn was buying up MGM's privately traded debt. By the early fall, he had amassed more than 10 percent of MGM's approximately $4 billion in debt - enough to give him a prominent voice among the creditors running the financially distressed studio."
Lions Gate claims that Icahn threatened in June to sue MGM and any other company that might hurt his chance at taking over Lions Gate. Icahn told shareholders he would block a "delusional" MGM merger and obtained a 33 percent stake in Lions Gate by September, Lions Gate claims.
"Icahn opposed a merger with MGM not because it was bad for Lions Gate shareholders, but because it was good - so good, in fact, that he wanted to postpone it until he could buy as much of both companies as he could and thus extract for himself as much of the value stemming from the merger as possible," according to the complaint.
Icahn and affiliates sued Lions Gate in August, claiming the company was blocking him from buying enough shares in the company to elect a board member, and that Lions Gate schemed to "consolidate control in management-friendly hands."
The August lawsuit describes Icahn's "growing concerns about the management of Lions Gate, including rapidly growing overhead expenses, increasing financial exposure to internally developed and risky theatrical releases, and the company's acquisition of high-priced distressed assets."
Lions Gate says Icahn obtained interests in each company at depressed prices because he was publicly critical of the companies, "telling the investing public that a Lions Gate-MGM merger transaction would be a financial debacle."
In his bid to amass Lions Gate shares, Icahn bought Mark Cuban's 5.4 percent bloc at just $7 a share, though Lions Gate says it offered Cuban more money. Icahn sweetened the deal with Cuban, but neither party has disclosed the arrangement, according to the complaint.
With his significant position in MGM debt is in place, Icahn has now "launched a full-court press" for the merger between Lions Gate and MGM, Lions Gate claims.
Since Icahn may take control of Lions Gate, shareholders have a right to know his true plans and views on the potential MGM transaction, according to the complaint.
"While urging Lions Gate shareholders to support his takeover campaign - either by tendering their stock or supporting his planned proxy contest - to ensure that Lions Gate did not pursue what he called a 'delusional' MGM transaction, Icahn was quietly amassing a huge position in MGM debt with the undisclosed intention of reaping profits from both sides in an eventual merger," according to the complaint. "Now, having acquired substantial holdings in both MGM debt and Lions Gate shares, he is aggressively promoting a merger between Lions Gate and MGM."
Lions Gate sued Icahn, his son, Brett, and 11 companies, including Icahn Partners, High River, Hopper Investments, Barberry and Beckton.
Lions Gate seeks damages and an injunction, alleging tortious interference with prospective business relations and Securities Exchange Act violations.
It is represented by William Savitt with Wachtell, Lipton, Rosen & Katz.