It’s been brought to my attention that hedge fund meister Mark Rachesky now controls about 17% of beleaguered Lionsgate through his MHR Fund Management. He previously had almost 16% but just bought 1.7 million shares over the past few days to up his ante. Why should Hollywood care? Because Rachesky was Icahn’s chief investment officer from 1990 to 1996, and they are pals. (Rachesky is often described as Icahn’s former protégé, and I’m told the pair are “very aligned”.)

So… if you included his 17% share, and added Carl Icahn’s 10.5% share, then this twosome owns 27% of Lionsgate. And that’s almost enough to take control of the whole company — if they want. (Not that Icahn has been shy about telling the public companies he invests in what to do: he wanted to oust Time Warner management and break up the troubled media giant.)

There also may be a 3rd act to this shadow play. I’m told that Michael A. Steinberg’s Steinberg Asset Management also has a very large position in Lionsgate now — 14.72% as of October 2008. Then there’s also this Lionsgate stakeholder: Gordy Crawford’s Capital Research Global Investors, which has held its 9.5% a long time. Now, Crawford has almost always been supportive of the managements of the media companies in which he invests. But, last summer, Crawford was thinking of siding with Icahn during the Yahoo mess.

So why all this interest? Well, that Lionsgate library is a very valuable property. As the mini-major itself says about it to investors: “With nearly 12,000 titles, including such evergreen hits as Dirty Dancing, Reservoir Dogs, Terminator 2, Basic Instinct, Total Recall, The Blair Witch Project, the Saw franchise, Crash, Monster’s Ball, the smash television series Weeds and the Tyler Perry catalogue, the Lionsgate library generates more than $250 million annually in recurring revenue and approximately $90 million a year in positive free cash flow, covering the Company’s corporate overhead and serving as a foundation for the disciplined growth of its core businesses. The stability and reliability of library cash flow differentiates Lionsgate from its independent competitors and provides the Company with the foundation for continuing to grow its motion picture pipeline without taking the larger budget risks common throughout the industry.”

Let’s face it, each of these really rich barbarians at Lionsgate’s gate — separately or together — could exert tremendous control. “But what can they do to change things in a realistic manner?” one of my financial sources wonders. “They can make Jon Feltheimer’s and Michael Burns’ lives miserable. But I’m not sure they have a strategic answer to the problems at Lionsgate. Lionsgate ain’t Time Warner.”

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