Starz Says Lionsgate Is Kicking Tires On Merger

Starz said in a regulatory filing today that Lionsgate has informed the company “it intends to explore whether there is a potential mutually beneficial combination of the two companies.” It’s the latest indication that something is afoot after months of reports and speculation that Lionsgate was kicking the tires of what would most likely be a Lionsgate-run combined entity.

The SEC filing this morning comes as Lionsgate is due to report quarterly earnings after the bell today. Shares in parent Lions Gate are down 2% in midday trading. Starz reports earnings later this month.

The rumor mill has been in overdrive since last February, when Liberty Media chairman John Malone, who controls Starz, made a stock swap with Lionsgate and joined its board. The transaction gave Lionsgate 14.5% of the voting shares of Starz, with an agreement not to go above 14.9% — leaving Malone as the biggest owner with 32.1% of the votes. The agreement left Starz with 3.43% of Lionsgate.

Malone has been eager to find a buyer for Starz. “You need to have partnerships; you need to do more,” Liberty Media CEO Greg Maffei said after that February deal. “Whether that ultimately leads to acquisitions… you need to be able to do more with bigger people.” Malone’s agreement to join the Lionsgate board was “a way for both parties to get to know each other a little bit better, in a concrete fashion.”

Today’s filing said any potential combination may involve stock or a combination of stock and cash, along with the usual regulatory lingo. “There can be no assurance that there is or will be any such combination, that such combination would be acceptable to either the Issuer or its shareholders, or that the structure, price, mix of consideration and terms that such a combination could take or the time that it could take to determine whether or not there is such a combination will occur,” it read.

There’s a logic to a deal that brings Starz together with Epix — the premium channel co-owned by Lionsgate, Viacom and MGM. Both trail HBO and Showtime, which are expanding beyond pay TV to compete with Netflix, Amazon and Hulu for online subscriptions.

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