Lions Gate Entertainment Corp.’s $4.4 billion deal to acquire TV network Starz, set to close by the end of the year, brings John Malone and a broad audience into its fold, but will taxes, debt, and competitive pressure weigh on the deal, which was approved by the federal government Aug. 1?
4 ways the deal could bode well for Lions gate
1. Financial synergies.
The deal will see a Lions Gate subsidiary merge with Starz into one company, which will then be subsumed by parent company Lions Gate. The combined entity would hold a 16,000-title film and TV library. In a filing with the Securities and Exchange Commission, the companies said the deal will result in savings of $50 million annually by getting rid of redundancies and gaining efficiencies from economies of scale in production, manufacturing, and marketing. The merger will give the combined company an average cash tax savings of more than $150 million each year through 2021. Going forward, Lions Gate said the parent company would invest $1.8 billion in new content a year. Meanwhile, it will have access to Starz’s television budget, which hit $207 million in terms of production and programming acquisitions last year, according to its most recent annual report.
2. Better together.
The combined company will be able to “combine the production capabilities of Lions Gate and the distribution of Starz,” said Steven Cahall, an analyst at RBC Capital Markets in New York. For example, Lions Gate could sell its popular television show “Orange Is the New Black” to Starz, which could in turn increase Starz subscription numbers. Depending on the arrangement, Lions Gate could later sell the international rights to another distribution platform.
3. Steady income.
“Lions Gate’s movie-driven business can be quite volatile,” Cahall said. “This adds a more stable earnings business.” Starz subscriptions will serve as a steady revenue stream for the studio. According to Starz’s website, the Starz channel has 24 million subscribers and sister channel Starz Encore has 32 million.
4. John Malone.
The billionaire media mogul is Starz’s largest shareholder. His holdings in Silver Spring, Md.-based mass media and entertainment company Discovery Communications Inc. and London’s Liberty Global, the world’s largest international TV and broadband company, could benefit Lions Gate, said Amy Yong, an analyst at Macquarie in New York. “Now Lions Gate is privy to those relationships,” said Yong. “They can share tech know-how and perhaps additional partnerships.”
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