Lionsgate Vice Chairman Michael Burns acknowledged that the company’s “stock is on its butt” and several M&A scenarios are again in play, but he also made a firm case for the company’s viability as is.
The executive made the remarks at the Bank of America Merrill Lynch Communications & Entertainment Conference in LA.
Starz, which Lionsgate bought for $4.4 billion in 2016, is the subject of a lot of speculation. Lionsgate held talks last spring with CBS about unloading the premium network, but the negotiations fell apart over price. Burns referred to Starz as a “misunderstood asset” but a “very complementary one” to the rest of the portfolio.
If Lionsgate sold Starz outright, Burns said later in the discussion, “then we would be a pure-play studio. … We’d have more money in cash on our balance sheet than our current stock price. And no debt. But then, what are we? That’s a conversation we’d have to have with ourselves and our board of directors.”
Class A shares in Lionsgate fell 4% Thursday to $11.21. The stock’s recent trading range has been the lowest since 2012.
Options could include either a sale or a stake taken by private equity or others. “We just want to be very selective about partners,” Burns said. “We don’t need the money. But if we do go that way, we want to have the right partner.”
Burns said he and CEO Jon Feltheimer “have built this company, brick by brick, for the last 20 years.” With Disney-Fox, A&T-Time Warner, Discovery-Scripps and many other deals reshaping the consolidated landscape, many investors have questioned Lionsgate’s viability as a stand-alone entity for much longer.
“Are we big enough to go it alone? Sure,” he said. “I’m not sure that bigger is necessarily better.” He mentioned activist hedge fund Elliott Management’s Paul Singer’s recent anti-merger critique of AT&T
As to the idea of being too small to compete, Burns said, “I would argue that a lot of the studios can’t really compete against Disney in the movie business. They have 42% of the market.” The Lionsgate approach, he said, has been to “hit ’em where they ain’t, find the right release date. Starz has a similar strategy.”
Given the recent volatility, Burns acknowledged, “we’re a bit of a ‘show-me’ story” to Wall Street.
Investors reacted with alarm to recent rumors that Comcast could punish Starz and Starz Encore when end-of-year carriage negotiations play out, sending the stock to a seven-year low. “Does that mean that it could get nasty and you go to war? Yeah, it could. We’ve done that before and everybody’s done that before,” Burns said. “I’m not sure anyone benefits from that, but sometimes it’s necessary.”
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