Lionsgate to Buy Starz for $4.4B

Ending nearly a day of speculation, Lionsgate said it would purchase premium channel Starz in a cash and stock deal valued at $4.4 billion, creating a “global content powerhouse” in movie and television production and distribution.

The deal has been anticipated for months and reports Wednesday said a deal was close. According to Lionsgate, each share of its common stock will be reclassified into 0.5 voting and 0.5 newly created non-voting shares.  Holders of each share of Starz Series A common stock will receive $18.00 in cash as well as 0.6784 of a share of Lionsgate non-voting stock based on a fixed exchange ratio.  Based on Lionsgate’s 20-trading day volume weighted average price, the offer represents a total value of $32.73 per share to Starz shareholders, an 18% premium. Holders of each share of Starz Series B common stock will receive $7.26 in cash and 0.6321 of a share of Lionsgate voting stock and 0.6321 of a share of Lionsgate non-voting stock.

Although anticipated for months, the combination will give Starz the production heft it has craved as well as a vast content library – the merged entity will have 16,000 movie and TV titles – while Lionsgate gets a distribution arm in the Starz and Encore premium channels. It also paves the way for a broad range of new content partnerships and accelerates the growth of Lionsgate and Starz’s own OTT services.

Lionsgate has been a growing force in television production – it purchased a stake in reality TV powerhouse Pilgrim Studios earlier this year – and has produced network hits like Mad Men, Weeds and Nurse Jackie. The studio currently produces 87 original series on 42 U.S. networks and has a feature film business that has generated over $7 billion at the global box office over the past four years. Starz reaches 24 million U.S. subscribers and its Starz Encore network with over 32 million subscribers and five OTT services.

Starz recently rebranded its services under the Starz Encore name and launched apps and a standalone OTT service that it hopes will draw more subscribers into the products.

Related:Aligning Starz

"The combination of Lionsgate and Starz brings significant scale to our portfolio of content and distribution assets and will enable us to compete successfully in today's rapidly evolving global entertainment marketplace," said Lionsgate chairman Dr. Mark Rachesky in a statement.  "By bringing together complementary resources, premium quality intellectual property and exceptional management, this strategic transaction positions us extremely well to unlock the underlying value of our content to create substantial lasting value for our shareholders."

The deal has been approved by Lionsgate’s and Starz respective boards of directors, but still requires approval from shareholders. The companies anticipate the deal will close by the end of the year.

“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 in a statement.  “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 company intends to fund the cash portion of the deal with a combination of newly issued bank and bond financing. 

 “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,” Albrecht said in a statement.  “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.”

LionTree Advisors is serving as exclusive financial advisor and Baker Botts LLP is serving as legal advisor to Starz.  LionTree Advisors provided a fairness opinion to the board of directors of Starz. The Raine Group is serving as financial advisor and Weil, Gotshal & Manges LLP is serving as legal advisor to the Special Committee of Starz’s board of directors. The Raine Group also provided a fairness opinion to the Special Committee of Starz’s board of directors.

PJT Partners is serving as lead financial advisor to Lionsgate. Additionally, J.P. Morgan, Bank of America Merrill Lynch, Deutsche Bank and Credit Suisse are serving as financial advisors to Lionsgate. Wachtell, Lipton, Rosen & Katz and Dentons are serving as legal advisors to Lionsgate. Financing was provided by J.P. Morgan, Bank of America Merrill Lynch and Deutsche Bank.  PJT Partners also provided a fairness opinion to the board of directors of Lionsgate and advised on arranging the transaction financing.