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Malone’s Ties That Bind

Just what cable legend John Malone has in mind with the recent deal between three of his holdings – Lions Gate Entertainment, Liberty Global and Discovery Communications – is truly only known to him, but that hasn’t stopped the speculation wheels from turning at break neck speed.

Lions Gate announced Tuesday that Discover and Liberty Global will each pay $195 million for a 3.4% interest in the movie studio and content production house, buying a collective 10 million shares from a private equity firm MHR Fund Management, controlled by Lions Gate CEO Mark Rachesky.

The deal adds to Malone’s holdings – he is chairman of Liberty Global and is a board member at Discovery – and fits nicely with his own 3.4% interest in Lions Gate, which he acquired in February. IN that deal, Malone swapped a 4.5% interest in premium channel Starz for the Lions Gate interest. At the time, the transaction fueled speculation that Lions Gate would eventually purchase Starz, which had been looking for a buyer for years, outright.

The latest deal has heated up the Starz talks again, although Lions Gate CEO John Feltheimer, on a conference call with analysts to discuss third quarter results Tuesday said he would not talk about Starz from an M&A standpoint. He did say that he thought the premium channel had hit a “bump” in recent quarters.

“I think they're transitioning right now,” Feltheimer said.   

Whatever the outcome, Malone is known for his patience and a knack for doing exactly what his competitors expect him not to do – the deal does bring three of his holdings closer together. Whether that could mean a Starz deal for Lions Gate or some other transformational transaction, only time will tell.

But the deal allows both sides to increase their stake in the studio up to a point and with Liberty Global Lions Gate gets access to the largest cable operator in Europe for its content.

Lions Gate has had an impressive run over the past few years in the studio business – it owns franchises like teen vampire series Twilight and The Hunger Games – and has produced several cable hits like Mad Men, Nurse Jackie and Weeds.  

While the deal allows both Discovery and Liberty Global to enter into separate commercial agreements with Lionsgate for licensing rights to theatrical and television content across their markets, Liberty Global sold off its content arm – Chellomedia – to AMC Networks for $1 billion more than a year ago and Lions Gate’s past output seems distant from Discovery’s usual fare of documentaries and reality shows. In a statement, Discovery CEO David Zaslav, who along with Liberty Global CEO Mike Fries will get a seat on Lions Gate’s board, said he was looking forward to the partnership.

"Lionsgate has created a strong television business and we are proud to take this ownership stake to gain access to terrific storytellers, creative leadership, and global formats and IP, in both nonfiction and scripted programming,” Zaslav said in a statement.  “As with all of our creative partners, we look forward to telling world-class stories with Jon and the deep management team at Lionsgate, and further strengthening Discovery's content pipeline across our linear and digital platforms around the world."