UPDATE: Lionsgate says it’s exploring options for Starz, news that is sure to heat up the M&A rumor mill. The company made the announcement in an SEC filing as it reported quarterly earnings. Specifically, it authorized its board of directors to “explore potential capital market alternatives for Starz.”
Executives on a conference call said multiples on recent media transactions — meaning high prices — make it a good time to look at a deal of its own. They don’t think Lionsgate stock price reflects the value of its assets and a sale would be a way to unlock shareholders value.
Rich deals lately include Amazon’s deal to buy MGM in May for $8.45 billion and Reese Witherspoon’s media company, Hello Sunshine being sold to a firm backed by private-equity giant Blackstone Group for a deal said to value the company at $900 million. The same group just announced it has acquired Moonbug Entertainment, the company behind kids’ shows CocoMelon and Blippi. That deal is said to value the group at as much as $3 billion.
Other transactions include LeBron James’s SpringHill Company selling a big stake to a group including RedBird Capital Partners, Fenway Sports Group, Nike and Epic Games that values the company at $725 million.
And the mega-deal that launched the latest wave of media mergers was the proposed combination of AT&T’s WarnerMedia and Discovery.
“While we continue to realize substantial synergies from bringing Lionsgate and Starz together, we also see the opportunity to potentially unlock significant shareholder value under a scenario where investors have the ability to value our studio assets and Starz separately,” said vice chair Michael Burns. “Recent transaction multiples in the media space give us confidence that exploring alternate paths is prudent.”
“Additionally, we believe that a number of the structures we’re considering would allow Lionsgate and Starz to preserve many of the operational benefits we’re currently achieving within a single corporate structure,” he said.
CEO Jon Feltheimer said he thinks Lionsgate is way undervalued and is even getting “negative value” for its Starz international assets.
Lionsgate shares are trading at around $14, up from a 52-week low a year ago of close to $7 but off a year high of over $21.42 in June.
The SEC filing said the board will explore alternatives for Starz, which is led by CEO Jeff Hirsch, “including, but not limited to, a full or partial spin-off, split-off, issuance of a tracking stock or other transactions. There can be no assurance that any such transaction will be announced or completed, and completion of any such transaction would be subject to various terms, conditions and regulatory approvals, as well as approval of the Company’s Board of Directors.”
Execs on the call stressed that this is an open process and wouldn’t say which kind of transaction they’re leaning toward. They also didn’t mention exploring options for Lionsgate in its entirety although the company has been seen as an attractive target or merger partner in the current frenzied climate.
PREVIOUS: Lionsgate said global streaming subscribers jumped 40% year-over-year in the September quarter to 18 million. Starzplay International subs nearly doubled to 7.5 million.
Revenue of $887 million, up from $745 the year before, was shy of Wall Street forecasts. Adjusted EPS of 15 cents a share was in line. The company swung to a net profit of $3.1 million in what was its fiscal second quarter from a loss of $21.7 million.
Lionsgate CEO Jon Feltheimer noted strong content generation across the company’s business, noting the strong premieres of three new series in the quarter — including Power Book III: Raising Kannan. The television group launched six new series and renewed six current shows. And motion pictures launched production of nine new films. “Importantly, we accomplished this and continued to ramp up our content spend while also continuing to generate positive adjusted free cash flow and solid adjusted OIBDA” – operating income before depreciation and amortization. That metric beat consensus forecasts.
The company said total media networks global subscribers reached 30 million. Media Networks segment revenue of $384.7 million was flat from the year earlier as profit dipped to $5.5 million, driven by higher cadence of programming and content spend and marketing costs.
Motion Picture segment revenue was up 28% to $331 million. Profit rose 22% to $101 million on higher home entertainment sales and profit contributions from acquired libraries.
Television Production revenue of $336 million was up 70% compared to the prior year quarter and segment profit surged by 188% to $28.5 million, reflecting the deliveries of a number of new series.
Revenue from Lionsgate’s 17,000-title film and television library was $784 million for the trailing 12 months. Lionsgate completed the acquisition of the 200-title Spyglass Media Group library in the quarter.
Execs will host a conference call at 5 pm ET to discuss the numbers.