Firm shoots for Starz and premium channels
Lions Gate secures cable networks with about 56 million subscribers
Lions Gate Entertainment Corp. has agreed to buy billionaire John Malone’s Starz in a cash and stock deal valued at US$4.4 billion, gaining premium cable TV channels to operate alongside the studio that produced The Hunger Games and Mad Men.
Most Starz shareholders will get US$18 a share in cash and newly issued non-voting stock in Lions Gate, for a total value of US$32.73 a share. That represents an 18 per cent premium based on recent trading, the companies said in a statement Thursday.
Shares of both companies rose in early trading Thursday. Starz soared 11 per cent to US$31.25, while Lions Gate climbed 8.4 per cent to US$22.70.
The combination creates a more diverse media company, with annual revenue exceeding US$4 billion.
Its interests span film and TV production, and will include the Starz and Encore cable networks, serving about 56 million subscribers.
Starz had 2015 sales of US$1.7 billion, while Lions Gate tallied US$2.36 billion.
“Starz brings free cash flow and a steady subscription-based business that can offset volatility for a studio business,” Macquarie Group Ltd. analyst Amy Yong said in an interview Thursday.
The companies have been the subject of merger speculation since February 2015, when they exchanged minority stakes and Malone joined the Lions Gate board.
Two other Malone companies, Liberty Global Plc and Discovery Communications Inc., later acquired stock in Lions Gate. The cable mogul, worth US$8 billion according to the Bloomberg Billionaires Index, has spoken publicly about rolling up media companies to gain scale.
With Starz, Lions Gates also gets Malone’s expertise, Yong said. “Malone is always very focused on not only the economics but also on the controlling aspect of any deal, and this seems to satisfy both,” she said.
“He sits on the board of Lions Gate, and I think he still wants to at least understand what’s going on in media, add value and create value.”
Lions Gate has struggled at the box office as one of its biggest franchises, The Hunger Games, concluded with no obvious replacement.
This year brought a series of box-office disappointments, such as Gods of Egypt and the last instalment of its Divergent series, and the shares have fallen 35 per cent.
The company has been growing its TV business, with shows like the popular Netflix series Orange Is the New Black, to counter the volatile film business.
Starz airs movies and original programming and has introduced an online-only subscription video service.
This month, CEO Chris Albrecht signed a new contract to remain until 2021.
While Lions Gate currently has one class of stock, the company is splitting its shares into voting and non-voting stock. Under the deal, Starz Series A stockholders will receive US$18 in cash and 0.6784 a share of Lions Gate non-voting stock. Starz Series B holders will get US$7.26 in cash and 0.6321 of a share of Lions Gate voting stock and 0.6321 of a share of Lions Gate non-voting stock, according to the statement.
Lions Gate will fund the cash portion of the deal with bank loans and bonds, increasing its debt leverage to as much as 5.5 times earnings, excluding savings from cost overlaps.