Lionsgate shares surged 7.4% this morning, with Starz up 3.4%, after they announced a stock swap that will bring Starz’ top shareholder, Liberty Media Chairman John Malone, to the independent studio’s board. When completed, Lionsgate will control 4.5% of Starz shares — but 14.5% of the voting shares, with an agreement not to go above 14.9%. Malone will continue to be its biggest owner with 32.1% of the votes. The premium network company will have 3.43% of Lionsgate.
The terms suggest that Lionsgate puts a $140 million price on its 4.5% of Starz, Stifel analyst Benjamin Mogil says. “At first blush, this deal likely bodes well for Lionsgate’s TV production segment as Starz has been ramping up its original programming slate,” he says.
The studio gave a proxy to Malone to vote its Starz shares, except for decisions to sell the stock. That will end if there’s a change in control at Starz, or Malone leaves the Lionsgate board. Meanwhile, Malone agreed not to transfer his Lionsgate shares to someone else for at least two years, with some exceptions. The companies each have a right of first refusal to pick up the shares in itself if the other wants out.
The one-time king of cable calls Lionsgate “one of the most exciting content companies in the industry.” Lionsgate CEO Jon Feltheimer and Vice Chairman Michael Burns said in a release that they see “tremendous value in Starz as well as the potential to explore a broad range of strategic initiatives in the future.”
Investors have wondered about Starz fate after it hired LionTree Advisers to look for deals — possibly one to sell itself. Those efforts seemed to have stalled late last year when reports circulated that CBS wasn’t interested. Lionsgate was also said to have taken a look. CEO Chris Albrecht didn’t confirm or deny the reports, but said in December that Malone is “excited about Starz as a business,” including its plans to boost the number of original series it airs.
Lionsgate is eager to boost its TV business, a steady profit generator with opportunities to expand overseas. The studio’s successes include AMC’s Mad Men, Netflix’s Orange Is The New Black, and Showtime’s Nurse Jackie.