Lionsgate Strengthens Ties To John Malone: Discovery and Liberty Global Buy Stakes

By David Lieberman, Anita Busch

Lionsgate shares rose 3.5% in opening trading this morning after CEO Jon Feltheimer said that he has a “deal in principle, subject only to documentation, to create a new strategic relationship” with Discovery Communications and Liberty Global.

Liberty Media’s John Malone, who joined the Lionsgate board earlier this year, owns 28.7% of Discovery and 25% of Liberty Global, making him each company’s dominant share holder.

Discovery and Liberty Global will each pay $195 million for 5 million Lionsgate shares — giving each company 3.4%. Discovery CEO David Zaslav and Liberty Global’s Michael Fries will join Lionsgate’s board. They will “bring further depth and vision” to the organization, Feltheimer told analysts this morning.

Separately, Lionsgate says that founder Frank Giustra will leave the board. Emily Fine, of Lionsgate Chairman Mark Rachesky’s MHR Fund Management, will join. Rachesky owns 27.2% of the company.

The CEO says “we’re working on [the Discovery and Liberty Global deals] for a while.” Zaslav and Fries “both built global businesses.” He adds that “the number of strategic alliances we’ve talked to them about are really, really significant … we think it’s a plus-plus-plus arrangement for us.”

The companies can raise their stakes in Lionsgate subject to an unspecified threshold and restrictions on their ability to sell. Striking such a strategic alliance with Liberty Global gives a platform for Lionsgate with the largest international cable operator. Lionsgate has been looking abroad for some time to increase the strength of its brand around the globe. Last year it partnered with Chinese e-commerce giant Alibaba to launch Lionsgate Entertainment World, a streaming service in China.

It doesn’t hurt that they have had two of the biggest franchises around — a series of Twilight movies based on the Stephenie Meyer novels which raked in over $3.3 billion worldwide and Hunger Games based on the Suzanne Collins series of novels, also a multi-billion business for the studio. However, the last Hunger Games releases on Nov. 20th in what they said would be given “the single largest global launch” in the company’s history. The cast is currently circling the globe on a press tour.

It also plans to build theme parks in China, the U.S. and just partnered with Dubai Parks and Resorts to open a Hunger Games themed roller coaster and attraction. The theme parks will also have attractions based on international favorite Step-Up, Divergent and Now You See Me (which is getting a sequel) and possibly Twilight.

The key for Lionsgate (as with any studio) is developing new franchises. While it has another Divergent series (Allegiant), John Wick 2 and Now You See Me 2 in the making, the question is which movie product might be able to tip the scale the way Twilight and Hunger Games have. Lionsgate is developing a number of properties, though, which could break out big including a Power Rangers movie, another based on the popular Hasbro game Monopoly and Odyssey which has the Hunger Games team helping to develop it. The rest are one-offs — Deepwater Horizon (Mark Wahlberg), La La Land (Emma Stone, Ryan Gosling) and the faith-based The Shack.

But they are steadily building a strong library of titles.

Monday night word came that Malone and Lionsgate were getting more cozy, but no one would confirm to Deadline. The announcement of the news at the top of the call today was smart strategically for Lionsgate and for Malone as it took the attention off the poor performance of their quarterly earnings. Liberty Media’s call with analysts takes place Thursday.

When Malone joined Lionsgate earlier this year, part of a stock swap with his Starz (he owns 47.2%), many analysts believed it was just a matter of time before the studio merged with the premium network company. Lionsgate already owns 31.2% of Epix, part of a joint venture with Viacom and MGM.

RELATED: John Malone May End Up With Bigger Stake In Lionsgate

Asked about Malone’s premium network company, Feltheimer said he’s “not going to talk about Starz in any way connected to M&A.”

Lionsgate shares fell 6.6% in post market trading last night after it reported September quarter earnings that fell short of Wall Street expectations — with a $7.2 million writedown for The Last Witch Hunter, released after the quarter ended.

Cowen and Co’s Doug Creutz called Witch Hunter‘s performance “instructive as management had pointed to it as a potential franchise-starter.” The analyst added that he’s “cautious about the company’s ability to kick-start new franchises given what has become an increasingly competitive film market.”

Lionsgate also disclosed, in an SEC filing, that Epix generated $27.9 million in net profits in the September quarter, up 0.7% vs the same period last year, on revenues of $105.2 million, up 9.8%.

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