October 21, 2008 / 10:49 PM / in 9 years

Icahn's bigger Lions Gate stake raises questions

LOS ANGELES (Reuters) - Carl Icahn has increased his stake in Lions Gate Entertainment to 9.2 percent from 3.7 percent, raising fresh questions on Tuesday about the activist shareholder’s plans for the independent movie and TV studio.

<p>Investor Carl Icahn speaks at the Wall Street Journal Deals &amp; Deal Makers conference, held at the New York Stock Exchange, June 27, 2007. REUTERS/Chip East</p>

Icahn said in a regulatory filing with the U.S. Securities and Exchange Commission on Monday that he spent $86.3 million to acquire the additional shares in Lions Gate, the studio behind “W” and the “Saw” horror film franchise. Icahn’s affiliates now own about 10.8 million shares of the company.

The company’s shares closed down 6 cents, or 0.8 percent, at $7.31 on Tuesday on the New York Stock Exchange.

Like many other media companies in recent weeks, Lions Gate has seen its shares decline amid turmoil on Wall Street, and some analysts believe Icahn may just be bargain shopping.

Icahn has been a shareholder in Lions Gate for three years, according to company spokesman Peter Wilkes.

“We’ve had a very open and constructive dialog. Our senior management team has a good relationship with him. We welcome his input, which is always very perceptive. He has a great track record for recognizing undervalued investments,” said Wilkes.

Activist shareholder Icahn recently sought unsuccessfully to oust Yahoo! Inc Chief Executive Jerry Yang to pave the way for a merger with Microsoft Corp.

He also tried two years ago to oust former Chief Executive Richard Parsons from his position at Time Warner Inc and break up the media company. Parsons remains Time Warner’s chairman.

Icahn successfully led a management shakeup and ouster of Blockbuster Inc’s former Chief Executive John Antioco a few years ago.

Analysts and investors for years have viewed Lions Gate as a likely candidate for a merger or acquisition.

“Lions Gate has been a perennial takeover candidate,” said David Joyce, an analyst with Miller Tabak & Co. But he said Icahn may just be taking advantage of the lower share price.

“As with just about every media company, there are a lot of bargains right now,” said Joyce, noting that Lions Gate’s shares fell sharply on October 10, when margin calls forced more selling in the stock.

“The lower share price made for an easy decision for anybody with cash like Icahn,” he said, noting that Lions Gate generates more than $100 million in free cash flow annually.

“That kind of strong balance sheet and growing business plan could make it an attractive takeover candidate or a company that would buy back a fair amount of stock, which is why I think Icahn would buy it,” he said.

While chatter regarding Lions Gate’s potential as a takeover candidate regularly resurfaces, the company has continued to expand, recently making various strategic acquisitions and forging lucrative partnerships.

“Everybody is asking the same question: Does Icahn see Lions Gate as an undervalued stock, or does he have an activist view and believe the company should review strategic alternatives? It’s tough to know,” said David Bank, RBC Capital Markets media analyst.

Reporting by Sue Zeidler; editing by Susan Kelly

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