BREAKING STORY (Keep refreshing for updates): It just happened:

NEW YORK, March 11 — Carl C. Icahn released the following statement today: “We have recently been engaged in discussions with Lions Gate regarding the possibility of having a number of our designees added to Lions Gate’s board of directors. Those discussions have been terminated because agreement could not be reached concerning certain aspects of the standstill agreement that Lions Gate demanded as a condition to installing those board members.”

And here’s Lionsgate’s response:

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.”

Oy, now things get really nasty. But I’ve been warning you about this. Lionsgate had “demanded” a standstill agreement as the corporate raider/shareholder activist kept buying stock in the open market, as if Jon Feltheimer et al was in any position to demand anything, after Carl Icahn had insisted on several seats on the board. So all that talk by Feltheimer et al about this being an amicable investment by Icahn was total bullshit. But I’ve been warning you about this, too.

The breakdown in negotiations occurred after Lionsgate reported late Monday a net loss of $93.4 million, or 81 cents a share, from a net income of $7.3 million, or 6 cents a share, in the same quarter last year. The mini-major blamed the quarterly loss to the underperformance of its feature films. Not only does Icahn own almost 15% of Lionsgate, but his ex-investment officer Mark Rachesky now has about 20% of the company. Icahn has been seeking at least 3, board seats but Lionsgate wanted to make it conditional on a standstill agreement. As if the studio had a choice with Icahn and Rachesky combined having almost 35% and that figure rising to 50% with the addition of Steinberg Asset Management’s shares. In a board election you only need more actual votes, not 51% of all outstanding shares.

If Icahn wanted to, he could likely wipe out the whole board. And why not? Because in the past few weeks, the aggressive level of acquisition of shares by both Icahn and Rachesky has got to make Felt and Burns understand that the little control they have over their company has been slipping away by the second. Now Lionsgate management is running scared and no longer interested in collaborating and placating the barbarians at the gate. But Jon Feltheimer and Michael Burns have no one to blame but their own failures (not even Joe Drake).

So now the only question left is: What does Carl want? To force a sale or breakup of the company, as some have speculated? But if Icahn really believes Lionsgate is undervalued, as he has said over and over for years, and now put his money where his mouth has been, he may believe in the value of content.  He’s also smart enough to know that when you can amass a huge stake like this in a company during a shutdown of the Mergers & Acquisitions markets, you don’t go selling it right away for a small premium.  You improve the operations of the company by cutting costs, and then you wait for a recovery, and then you seek a sale.

  1. Lionsgate And Icahn Talking Board Seats
  2. Icahn & Rachesky Add To Lionsgate Stakes
  3. Lionsgate Getting Eaten Alive By Hunters
  4. Another Update On Icahn vs Lionsgate
  5. Icahn Interested In MGM, Too?
  6. Carl Icahn Notifies SEC That He May Add Or Remove Lionsgate Board Members
  7. Carl Icahn Ups Stake in Lionsgate To 13%
  8. Carl Icahn Increases Stake Still More In Lionsgate; What It Means…
  9. Carl Icahn May Be Amassing Bigger Stake In Lionsgate Than Most People Realize
  10. Icahn Ups Lionsgate Stake; Stock In Freefall After Lousy Quarter
  11. Michael Burns Loses 1/2 Lionsgate Stake
  12. Carl Icahn Takes 9% Stake In Lionsgate