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Whale watching isn’t just a pastime in coastal towns.  In financial circles, the biggest of the big, the heaviest of the heavy hitters, aka the “whales,” often draw a crowd too.  Investors flock to see where the Buffet’s, the Soros’ and the Icahn’s of the world are deploying their capital.  It’s a chance to learn, or maybe even ride the coattails of an expert’s insight to a nice return.

For Carl Icahn watchers, the latest company to watch is Lions Gate.  As of June 30th, 2008, filings show Icahn had 3.65%  of the “mini-major” production company, or 4,289,508 shares.  This month he doubled down.

SEC filings reveal Icahn acquired more than four million additional shares in October.    The individual buys, as listed in the filings, are detailed in the table at the end of this article.

The combination of the prior purchases and the new mean Icahn now holds more than 10.7m share of the company, an amount equal to approximately 9.17%.

On October 10th, near the start of Icahn’s purchases, the stock was at a four year low of $5.59. That daily price was partly the result of sales volume generated when the company’s vice chairman, Michael Burns, was forced to sell almost half of his shares to satisfy margin requirements.   The approximately $4.04m in sales, which were reported in October 14th regulatory filings, were the result of a loan in which the stock had been pledged as collateral.  Both Icahn and MHR Fund Management, Lions Gate’s largest shareholder, were buying in the days that followed.  Icahn also bought several hundred thousand shares on October 10th.

In the past, as profiled during the Yahoo proxy fight on Metue, Icahn has relied on a number of different strategies in his investment decisions.   Sometimes he acts as a passive value investor.  More often, particularly in recent years (Motorola, BEA, Yahoo), as an “activist” shareholder, he takes control positions.  In such moves, he seems to look for companies with troubles and then buys influence.  The positions which might range from 3 to 15 percent become leverage for him to push management to implement strategies of his suggestion: buybacks, asset divestitures, asset purchases, management reorganizations, or the replacement of boards.    

The control investment method was used successfully to push Motorola to split into two pieces. It was also successful in driving BEA to sale.

The SEC filing indicates here that the shares in Lions Gate were “acquired in the belief that the shares were undervalued.” The filing also says that Icahn has had discussions with the company’s CEO and Vice Chairman.

The nature of those discussions, or Icahn’s intent, are not public.  At this point, there is no evidence to suggest a plot toward greater control or an activist position but the size of the position, nonetheless, makes the company worth keeping an eye on. 

One speculative theory already making the rounds is that Icahn will push for a possible integration with MGM which, coincidentally, is run by a former Lions Gate co-chairman in Harry Sloan.  It remains an unsubstantiated theory but Lions Gate and MGM, along with Viacom’s Paramount and possibly Blockbuster (where Icahn is on the board) are already partners in an joint venture  to launch a new cable TV channel  to compete against HBO, Showtime and Starz (Liberty Media). MGM’s is also largely owned by private equity owners (who control about 60% of the company) and they may be particularly open to a deal if the price yields enough of a return on their investment.

[Side Note: From an "activist" standpoint, Lions Gate, in line with some of Icahn’s ideology on corporate governance, does not have a staggered board of directors.  Its directors are all elected annually for a one year term.]

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