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Analysts: Lionsgate's Summit Takeover Driven by 'Twilight' Franchise Cash Flows

Andrew Cooper/SMPSP/Summit Entertainment LLC

The indie studio gets positive reviews for its $412 million leveraged buyout as it discloses some more terms of the deal and its stock hits a 52-week high.

TORONTO – Just how important is the Twilight movie franchise to Lionsgate Entertainment after swallowing privately-held Summit Entertainment on Jan. 13, via a leverage buy-out deal?

Vancouver-based Lionsgate in an SEC filing Tuesday said the Summit owners will receive up to extra $7.5 million, beyond the $412 million purchase price before debt, if the domestic theatrical receipts for one or both of The Twilight Saga: Breaking Dawn — Part 1 and The Twilight Saga: Breaking Dawn — Part 2 exceed prescribed thresholds.

Lionsgate's stock in early Tuesday trading hit a 52-week high of $9.07. As of 1:10pm ET, it was up 3.6 percent at $8.91.

Other revelations from the regulatory document Tuesday indicate Lionsgate paid the Summit owners $343.5 million in cash at the closing of the leveraged buy-out deal, $49 million in Lionsgate common stock, and an additional $20 million in cash is to be paid within 60 days of the deal closing.

The SEC filing also indicates Summit on Jan. 13 secured a $500 million term loan to run to September 2016, guaranteed by its assets and likely to be repaid with Summit cash flows, according to financial analysts.

Entertainment analyst Ben Mogil of Stifel, Nicolaus in a Tuesday investors note argued the Twilight franchise is key to the deal.

“… the Twilight cash flows (discounted) are worth nearly $900 million to Lionsgate and even assuming a negative return on the remaining Summit slate, the deal is positive from an [net present value] perspective, in our view,” Mogil wrote.

And David Joyce of Miller Tabak & Co. in his own note Tuesday also sounded a positive note on the deal: “We view this as a smart strategic and financial move by LGF, which used approximately $300 mm of Summit’s cash to help fund the transaction and expenses.” Joyce estimated the upcoming final installment of popular vampire franchise Twilight Saga: Breaking Dawn Part 2 will pull in $280 million domestically.

And Matthew Harrigan of Wunderlich Securities maintained a "buy" rating on Lionsgate stock with a $10 per-share target.

“Although there are dangling management uncertainties on the long-term roles for Summit co-chairmen Rob Friedman and Patrick Wachsberger, the immediate intent is to run parallel film entities with both international distribution entities reporting to the foreign-market-savvy Patrick Wachsberger,” he wrote.