Lions Gate said it is again in merger talks with Starz.
In an SEC filing, Lions Gate says it “has informed [Starz] that it intends to explore whether there is a potentially mutually beneficial combination of the two companies.”
The filing says there is no guarantee that a deal will be completed.
Investor John Malone, who controls stakes in both companies, has said in an interview that he expects consolidation among the programmers to follow consolidation among the distributors in the cable business.
Analyst Ben Swinburne of Morgan Stanley said in a report he estimates that combining the company could result in 42 billion of synergies, including $1 billion in tax savings with Lions Gate based in Canada.
Swinburne sees other benefits in a combination of Lions Gate and Starz.
“While we are not generally believers that vertical integration between studios and networks intrinsically creates value, in the case of a hypothetical Lions Gate / Starz combination we see a few specific benefits. Starz is relatively sub-scale in original content production, and greater scale could drive cost efficiencies in TV production and (potentially) better looks at upcoming TV content and talent. Second, Starz has a certain degree of supplier concentration risk, with only one major studio film output deal in the [first pay] window (Sony), so a closer relationship with LGF might lessen that risk and consequently improve Starz' bargaining power with Sony longer-term,” he said.
Lions Gate would benefit from a stable foundation of cash flows by being combined with Starz and Encore.
“However, as a partial offset, we believe an independent studio's ability to auction content to the highest bidder is attractive to Hollywood talent, and vertical integration might dilute LGF's value proposition to talent,” Swinburne said.
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