Lionsgate has sealed an agreement to acquire premium cabler Starz in a $4.4 billion cash and stock deal. The deal had been expected. The two companies have flirted with a merger on and off for more than a year. The two were united in a corporate marriage early last year by investor John Malone, the majority shareholder in Starz who also acquired a stake in Lionsgate last year. Malone’s stake in Lionsgate will grow considerably through the Starz acquisition pact as he will receive voting and non-voting Lionsgate shares in exchange for his preferred Starz Class B stock.
Lionsgate said the deal in total values Starz shares at $32.73, an 18% premium over the 20-day average trading price for Starz as of June 28. Starz shares have been on the rise for the past few months as acquisition rumors heated up.
“This transaction unites two companies with strong brands, complementary assets and leading positions within our industry,” said Lionsgate CEO Jon Feltheimer and vice chairman Michael Burns. “We expect the acquisition to be highly accretive, generate significant synergies and create a whole that is greater than the sum of its parts. (Starz CEO) Chris Albrecht and his team have built a world-class platform and programming leader, and we’re proud to marshal our resources in a deal that accelerates our growth and diversification, generates exciting new strategic content opportunities and creates significant value for our shareholders.”
The deal calls for Starz shareholders to receive $18 in cash and non-voting shares in Lionsgate. The transaction will see Lionsgate shares reclassified into voting and non-voting shares, a structure that is common in Malone-affiliated companies. Malone’s investment in Starz was a personal holding rather than through his Liberty-branded holding companies. However, Liberty Media CEO Greg Maffei serves as chairman of Starz.
“Jon, Michael and the rest of the Lionsgate team have built the first major new Hollywood studio in decades, and we’re thrilled to join with them in a transaction that multiplies the strengths of our respective businesses,” said Albrecht, who earlier this week signed new employment contract that runs through 2020. “Our similar entrepreneurial cultures and shared vision of the future will make this alliance an incredible fit that creates tremendous value for our shareholders, great content for our audiences and limitless opportunities for our newly-combined company. I am very appreciative of the work, passion and dedication of both of our companies’ employees and more enthusiastic than ever about the future of our business.”
Lionsgate said it expects to fund the deal with a combination of loans and bonds. It will raise the studio’s debt leverage to 5 to 5.5 times earnings, although the cash flow provided by Starz will help them whittle down that debt, the company said. The deal is expected to close by year-end.
The big question raised by the deal is how it will affect Lionsgate’s participation in Epix, the premium movie channel it owns with Viacom and MGM. Lionsgate has about a 30% stake in Epix, which has been the pay TV home for its movies since 2009. In the short term, execs said, the Epix partnership will remain intact.
Lionsgate and Starz billed the union as a natural fit of a studio that is increasingly invested in high-end TV content and a premium cable group that has momentum with original programming for the first time since its launch in 1994. Starz’s buzzy dramas at present include “Outlander” and “Power.” Starz has de-emphasized its focus on theatrical movies in the past few years under Albrecht. Sony Pictures is the only studio with which Starz has a movie output deal. That pact runs through 2021.
