Is Lionsgate stalking the Lion?

Exec signals interest in some kind of deal with MGM

Lionsgate will keep its balance sheet healthy to be ready to pounce should content libraries become available as private-equity groups look to exit investments, vice chairman Michael Burns said Tuesday.

Speaking at the annual UBS Global Media & Communications Conference in New York, he expressed interest in content assets that "private equity fought over and is rotating out of."

Several Wall Street attendees at the conference took this as a signal from deal and finance expert Burns that Lionsgate would like to do some sort of a deal with the current owners of MGM.

Banking and industry sources immediately pointed out that structuring an acquisition would be tough for Lionsgate given that MGM reaped about $5 billion in its sale to a group of private-equity firms, Sony and Comcast in late 2004. The private-equity investors also likely would want a nice return on their stakes, meaning MGM's price tag would be higher this time.

An acquisition would be tricky as Lionsgate doesn't have massive amounts of cash, and the global credit crunch has made raising financing difficult and expensive.

Nonetheless, a couple of banking sources wouldn't rule out the chances for a merger of equals or an acquisition of at least a controlling stake in MGM with some creative financial structure down the line. "The two companies would have a great library together," one of them said.

Also, MGM boss Harry Sloan used to work with Lionsgate co-chairman and CEO Jon Feltheimer. Observers said there were rumblings of a possible Lionsgate-MGM merger in the past.

While MGM management has been focused on rebuilding the studio's business rather than dealmaking, at least some of the investors are believed to be willing to sell at the right price.

Burns declined comment on MGM, but a Wall Street source said he has expressed an interest in a deal with MGM before. Representatives for MGM and Providence Equity Partners, which owns the largest stake in the company, declined comment.

In his investor presentation Tuesday, Burns touted some of the film business' growth opportunities and said Lionsgate is looking to take advantage of them.

For example, he signaled that Lionsgate in the future will suggest to pay TV firms like Showtime "bifurcated" deals that lets the studio retain the rights for online and other digital exploitation in return for less upfront pay.

And VOD is a business with more upside, Burns told investors at the UBS conference. He said VOD revenue at Lionsgate now can bring in about 15% of boxoffice take.

The exec also predicted a fast resolution of the writers strike.

"I happen to think it's gonna be over in a couple of weeks," he said, pointing to Tuesday's resumption of talks.

He said Lionsgate wouldn't see a real impact on its operations until spring when some of its TV shows would be affected.

Discussing the economics of Hollywood, Burns said, "Writers are generally very well paid," adding that economics "border on being terrifying."
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