Over the last couple of months starting October 2008 financier, corporate raider, and private equity investor Carl Icahn has incrementally been buying a bigger stake in Lionsgate Films. When the market crashed in September 2008 the Hyenas came to feast and Icahn was quoted in saying that Lionsgate is undervalued stock. He quickly dove in and doubled his initial stock in LGF from 4.1% to 9.6% in October.

So that you know…LGF is a mini-major studio and is probably best known for their gore fest SAW collection. These films have kept the company going so far, well that and their phenomenal film library with nearly 12,000 titles (8000 TV shows and 4000 films). These titles include hits like Dirty Dancing, Reservoir Dogs, Terminator 2, Basic Instinct, Total Recall, The Blair Witch Project, the Saw franchise, Crash, Monster’s Ball, and the smash television series Weeds. This library generates more than $250m a year in recurring revenue. The positive cash flow of approximately $100m also covers the $90m a year in overheads and creates a stable platform for the company to focus on their core business.

It all went quiet for a while over the holiday season and then in February, BAM!Mark Rachesky buys 1.7m shares giving him a total of 17% stake in LGF. What is the point of this transaction you may ask…? The point is Rachesky is known to be Icahn’s “protege” in the fierce and feisty finance world. He worked for Ichan from 1990 - 1996 and the two are known compadre’s. From this position it seemed as if Icahn was maneuvering to take more control of the management of LGF and cause some stir as he did at Time Warner not to long ago. For the record, that did not end completely in Icahn’s favor. Link

January 2009 Icahn starts talks with LGF about including some board members of his request. These talks continue while the press try and figure out his next move might be including perhaps the sale of LGF. Icahn raises some issues about LGF’s financial state and it’s management that do not sit to well with CEO Jon Feltheimer. Icahn reiterates that he thinks LGF is undervalued and could be making better profit by spending money more wisely and specifically to core business. Feltheimer had recently purchased TV Guide (a TV Network which Feltheimer sais falls into LGF long term strategy of broadening LGF business) which Icahn said was “reckless”.

Jump forward to March and the talks crumble. Feltheimer calls a stand still on the talks saying that although he is happy to listen to stock holders ideas his loyatly is toward shareholders.

Santa Monica, CA, and Vancouver, BC, March 11, 2009 — Lions Gate Entertainment Corp confirmed today that it has ended discussions with Carl Icahn about potentially adding his designees to the Lionsgate Board of Directors.

Lionsgate Co-Chairman and Chief Executive Officer Jon Feltheimer and Vice Chairman Michael Burns said, “Lionsgate has a strong track record of successful growth over the past nine years and is committed to building value for its shareholders. We are always open to hearing the ideas of our shareholders and exploring ways to incorporate them. Over the past three weeks, our Board of Directors has been in discussions with Mr. Icahn to consider how we could accommodate some of his requests, including the possible appointment of his designees to the Board of Directors. However, the Board ultimately concluded that it could not meet his requests and continue to serve the best interests of all of our shareholders, which is our number one priority.”

On March 13 Icahn offers to buy $325m of LGF debt. This will allow him to flex more board power and he may turn this debt into LGF shares. Icahn has made it clear that he is not interested in selling LGF in the current climate but this move is deliberate and clear to put pressure on management for board seats.

Icahn has not finished with LGF and this little “mellow” drama has not reached it’s final episode in this season.

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Nikki Finke