EXCLUSIVE… UPDATE: The announcement of Lionsgate’s purchase of Twilight Saga studio Summit Entertainment has come down today. I’ve learned the final price is a bit higher than I’d previously reported: $712.5M, consisting of
$425M $412.5M equity plus an assumption of $300 million of debt. Most of that debt will be in the form of a bank loan by JP Morgan to Lionsgate. Several estimates had valued Summit at between $350M and $450M so the price Lionsgate paid is completely within bounds. (Although the gross debt on Summit’s balance sheet is $500M, part of it gets wiped out by cash, and part of the cash moves with the company. See deal points below.) But I’ve learned that Summit Entertainment co-chairs Rob Friedman and Patrick Wachsberger have not signed respective employment agreements yet. Until then there’s nothing binding the pair to Lionsgate despite sources saying that Friedman will take over domestic and Wachsberger foreign and together run the movie division for Lionsgate chairman Jon Feltheimer and vice chairman Michael Burns. I’m betting that Rob and Patrick will be sought after: financiers like Tom Barrack’s Colony Capital (which came in No. 2 to buying Summit) want to set them up in business all over again. “This deal puts money in their pocket immediately. But then they can figure out what it is they really want to do,” a source tells me. Meanwhile, Lionsgate’s current movie chief Joe Drake will have his choice whether to stay or to go. The product pipeline of Lionsgate-Summit will be 10 to 14 movies a year. Meanwhile Friedman and Wachsberger are still employees of Summit and very busy with Summit business: the studio’s Now You See Me starts production on next week, while Man On A Ledge releases January 27th, followed by the Twilight Saga: Breaking Dawn Part 1 DVD selling February 11th.
What a shame that Hollywood loses a buyer (9-10 pics a year) now that Summit after so much independent success becomes an appendage to Lionsgate not unlike New Line is to Warner Bros. So Summit will remain a standalone label the time being. But the privately owned studio ended up a takeover target since it was sitting on so much cash. Wachsberger and Friedman owned just under 30% of Summit and other investors the remaining, including Rizvi Traverse Management which had a lions share. All were eager to see a payday. The common belief was that Summit had been struck by lightning with the success of the Twilight Saga franchise – $2.5 billion at the worldwide box office already — now coming to an end with Breaking Dawn Part 2 debuting in November. So this was the right time for everyone connected with Summit to score a windfall.
For publicly traded Lionsgate this deal for Summit gives it cash as a badly needed hedge against the forthcoming The Hunger Games movie releasing in 2012 based on the bestselling book. If Hunger Games doesn’t turn into the hoped-for Twilight-huge franchis, Lionsgate is going to be in even worse shape than it was in 2011 when its debt stood at roughly $590M at the end of September, according to the company’s filings, and Lionsgate’s box-office haul was $332M, down -64% from 2010.
2ND UPDATE: Here is the announcement:
SANTA MONICA, Calif. and VANCOUVER, British Columbia, Jan. 13, 2012 – Lionsgate (“the Company”) and Summit Entertainment today announced that Lionsgate has completed a transaction to acquire Summit for a combination of cash and stock valued at $412.5 million.
The transaction unites two leading studios with powerful brands and complementary assets, solidifying Lionsgate’s position as the world’s largest and most diversified independent entertainment company. By acquiring Summit, Lionsgate enhances its feature film and home entertainment offerings and further broadens its 13,000 title filmed entertainment library to include such titles as The Twilight Saga, The Hurt Locker and Red. The integration of both Summit’s domestic and international theatrical film operations will significantly enhance Lionsgate’s production and distribution capacity, while also extending the
Company’s worldwide reach and creating a dominant international sales organization.
The transaction brings together Summit’s Twilight Saga feature film franchise, which has already grossed more than $2.5 billion at the worldwide box office, and Lionsgate’s highly anticipated Hunger Games franchise, which opens on March 23, 2012. Lionsgate will also continue to benefit from its premier television
production and distribution business, its array of branded film and television properties, its suite of branded channels and its success as an innovator in creating and distributing content for digital platforms. Both the Lionsgate and Summit labels are expected to continue and be active in the production and
distribution of films, although the combined company expects to realize significant synergies through the consolidation of administrative and other costs.
“This transaction continues Lionsgate’s long-term growth strategy of building a diversified worldwide media company through a combination of disciplined,
accretive strategic acquisitions and organic growth while maintaining a solid balance sheet,” said Lionsgate Co-Chairman and Chief Executive Officer Jon
Feltheimer and Vice Chairman Michael Burns. “We are uniting two powerful entertainment brands, bringing together two world-class feature film franchises
to establish a commanding position in the young adult market, strengthening our global distribution infrastructure and creating a scalable platform that will
result in significant and accretive financial benefits to Lionsgate shareholders. Rob Friedman and Patrick Wachsberger have built a remarkable organization, and we’re pleased to welcome Summit’s talented team to the Lionsgate family. Lionsgate’s growth has been built over the years in part by the successful acquisition and integration of companies like Trimark, Artisan, Redbus, Debmar-Mercury, Mandate and TV Guide Network and, in each case, Lionsgate has emerged stronger and the Company’s brand has become more resonant.”
“Jon Feltheimer, Michael Burns and the rest of the Lionsgate team have built an exciting and entrepreneurial content leader over the past 12 years, and we’re
delighted to join together these two great companies,” said Summit Entertainment’s Co-Chairmen Rob Friedman and Patrick Wachsberger. “We believe that the combined entity will be even greater than the sum of its parts and our dramatically enlarged media platform will create tremendous opportunities for all of us within the Summit and Lionsgate families. We want to thank our employees, whose hard work and creativity have led to the successful evolution of Summit into a leading worldwide studio, and the combination of Lionsgate and Summit will be the next chapter in creating a true global media powerhouse.”
“As demonstrated by this acquisition, Lionsgate remains focused on preserving a strong balance sheet while pursuing its long-term growth strategy,” said Dr. Mark H. Rachesky, Co-Chairman of the Lionsgate Board of Directors. “We are big believers in the increasing value of content and this transaction strengthens Lionsgate’s asset base while providing significant financial benefits, including highly visible cash flow and revenue. We are looking forward to realizing the
value of a Lionsgate-Summit combination for all Lionsgate shareholders.”
The majority of the purchase price was funded with cash on the balance sheet at Summit. The remainder was funded with $55 million of existing Lionsgate cash, $45 million of cash received from a newly issued series of Lionsgate convertible notes, $50 million of Lionsgate common stock and an additional $20 million of cash or stock to be issued at Lionsgate’s option within 60 days. At closing, Summit’s existing term loan was refinanced with a $500 million debt facility, secured by the collateral of the Summit assets. Although the term loan matures in 2016, the Company anticipates repaying the loan well before the maturity date, due to the significant cash flow the business is expected to generate. In addition, this expected cash flow will facilitate the Company’s financial
objective of further deleveraging Lionsgate’s balance sheet. The transaction is expected to be significantly accretive in Lionsgate’s 2013 fiscal year beginning
April 1, 2012.
JP Morgan, Barclays Capital, and Jefferies served as joint lead arrangers and joint bookrunners on financing the acquisition for Lionsgate. JP Morgan, Barclays
Capital, and Jefferies also served as financial advisors to the Company. Barclays Capital provided a fairness opinion to Lionsgate. Wachtell, Lipton, Rosen & Katz served as outside legal counsel for Lionsgate. Liner Grode Stein LLP and Skadden, Arps, Slate, Meagher & Flom LLP served as outside legal counsel for Summit.