Activist investor Carl Icahn said he has no plans to push for a sale of Lions Gate Entertainment Inc in the current environment, but criticized the Hollywood studio's expenses for being too high and called its purchase of TV Guide reckless.

The billionaire investor, who controls 14.5 percent of Lions Gate's stock, is seeking more influence over the film and television studio. He announced on Thursday a tender offer to buy $325 million worth of its convertible debt.

The move came a day after negotiations between Icahn and Lions Gate, the largest independent Hollywood studio, fell apart.

In an interview with Reuters, Icahn said he felt the expenses of Lions Gate -- producer of the popular Mad Men cable TV show and Saw film franchise -- were extremely high and criticized the TV Guide cable channel acquisition.

It borders on recklessness to spend $250 million for a company based on short-term borrowing from a revolver, particularly when that revolver goes into default if anyone buys over 20 percent of the common stock, Icahn said.

He was referring to the fact that if an investor's stake in Lions Gate exceeds 20 percent, it could trigger a change in control, which in turn could create problems with Lions Gate's credit facility under existing financing agreements.

Merger specialists and analysts said that credit facility appears to be a source of frustration on multiple levels for Icahn, who indicated last month he may call a special shareholder meeting to elect board members.

The credit facility serves as a defense mechanism and also poses potential liquidity issues for the company, said David Bank, analyst with RBC Capital Markets.

Investors believe that tendering for the subordinated debt is a way to wield more influence for Icahn.

This may be a way to buy another stake, gain another voice as a debtholder as well as a shareholder without triggering covenants in the credit facility, said Thad Davis, a mergers and acquisition litigator with Ropes & Gray.

LIONS GATE RESPONDS

Lions Gate disputed Icahn's criticism of the TV Guide deal. We're excited about the opportunities provided by the continued growth of our channel platform business and TV Guide Network's reach into 83 million homes, a spokesman said. This is the most recent example of our disciplined long-term growth strategy designed to build value for all of our shareholders.

Lions Gate has a recent hit on its hands with Tyler Perry's Madea Goes to Jail but last month posted a quarterly net loss of $93.4 million on some poorly performing films and DVD sales.

The studio's library of more than 8,000 films and 4,000 TV shows is considered its most valuable asset, generating $275 million in annual revenue and $100 million in free cash flow.

Icahn is the third-largest investor in Lions Gate with a 14.5 percent stake. His former investment chief Mark Rachesky's MHR Fund Management has 19.4 percent and Steinberg Asset Management has 14.6 percent.

Buying the debt will provide Icahn with the ability to ultimately vote more shares if he chooses to convert them into shares, ultimately putting him in a stronger position to affect the outcome of a proxy vote, said Richard Dorfman, managing director of investment firm Richard Alan Inc, which owns shares in Lions Gate.

Icahn said in a statement the tender offer is for all of Lions Gate's $150 million convertible senior subordinated notes due 2024 and for $175 million in notes due 2025.

Icahn and Lions Gate had clashed over certain aspects of a standstill agreement that the studio had demanded to get Icahn to agree to limit his stake, in exchange for at least two board seats.

Lions Gate said on Wednesday it ultimately concluded it could not meet Icahn's requests and continue to serve the best interests of all of its shareholders.

Lions Gate shares fell 27 cents, or 5.44 percent, to close at $4.69 on the New York Stock Exchange before Icahn's news.

(Reporting by Sue Zeidler; Editing by Tiffany Wu and Richard Chang, Gary Hill)

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