2nd UPDATE: Icahn Launches Offer To Boost Lions Gate Stake

Activist investor Carl Icahn is seeking to ratchet up his ownership stake in Lions Gate Entertainment Corp. (LGF) in a move seen as trying to prevent the film company from making an acquisition he would deem undesirable.

Icahn said Tuesday that he has launched a tender offer, valued at a 15% premium to Friday's closing price of Lions Gate shares, to boost his stake in Lions Gate to 30% from 19%. He offered no reason for the tender offer, but he did note that, when an investor builds a stake of more than 20%, the action triggers the company's so-called "poison pill," a measure designed to discourage hostile takeovers by putting the company in default of a credit line.

Icahn expressed confidence that the film-and-television production company can obtain a waiver from its lenders in this case. Nevertheless, analysts say the move gives Icahn added power over the company's management and its board.

"Icahn doesn't want to put the company into default, but he's using this event as a megaphone to say to Lions Gate and its shareholders that maybe another acquisition isn't the best allocation of capital," said David Bank, analyst with RBC Capital Markets.

Currently, the Miramax library from Walt Disney Co. (DIS) and the library of struggling Metro-Goldwyn-Mayer Inc. are known to be up for sale.

Lions Gate shares climbed 4.8% to $5.48, below the $6 offer price that Icahn proposed as part of his effort to add up to 13.2 million additional Lions Gate shares to his holdings.

Lions Gate said in a statement that it will provide a recommendation to shareholders "promptly." Lions Gate spokesman Peter Wilkes couldn't be reached immediately for comment.

The company, distributor of the Oscar-nominated film "Precious," last week reported a fiscal third-quarter loss that was far wider than analysts on Wall Street were expecting, despite higher revenue from its television shows, new revenue from the TV Guide business and lower theatrical marketing and overhead costs.

"They've done a good job on the TV side, but the film business has been unstable, and, on a near-term financial basis, the stock doesn't look very attractive," said Matthew Harrigan, analyst with Wunderlich Securities. "Clearly, Icahn sees value in the company's assets."

Lions Gate finished its third quarter with $105 million in cash and $437 million in long-term debt and capital leases.

Last week, Icahn boosted his stake to 19%--the second time this month that he added to his position in Lions Gate after the company last summer turned down his request for board representation.

Icahn has been critical of Lions Gate's use of cash, including its 2009 purchase of TV Guide Network and TVGuide.com for $255 million. For his part, Lions Gate Chief Executive Jon Feltheimer said last week that those assets are already worth twice what the company paid for them.

When asked about the potential for acquiring Metro-Goldwyn-Mayer or Miramax, Feltheimer said such opportunities would be approached with financial discipline.

"We don't overpay, and we're not in a hurry," Feltheimer said. "Any transaction we make goes through this filter."

Vice Chairman Michael Burns said Miramax "obviously is an asset that would fit into a lot of the criteria that Jon mentioned earlier," but he said the key was whether the transaction would add to profits right away.

Lions Gate is one of several companies that have submitted bids in an ongoing auction process for Metro-Goldwyn-Meyer that has been complicated by the film studio's own credit problems, according to people familiar with the matter.

Other companies making offers or weighing bids for the storied studio are Time Warner Inc. (TWX); Summit Entertainment; Liberty Media Corp. (LCAPA, LINTA, LSTZA); CBS Corp. (CBS); AT&T Inc. (T); and Indian conglomerate Reliance Industries Ltd., these people said. Peter Chernin, former president of News Corp. (NWSA), and Terry Semel, former chairman and CEO of Yahoo Inc. (YHOO), also have expressed interest, they said.

News Corp. Chief Executive Rupert Murdoch said during a recent conference call that his company could be counted out of the Metro-Goldwyn-Meyer bidding because the price tag had gotten too high. News Corp. owns Dow Jones & Co., publisher of this newswire and The Wall Street Journal.

-By Nat Worden, Dow Jones Newswires; 212-416-2472; nat.worden@dowjones.com

(Kathy Shwiff contributed to this article.)

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