Starz, Lionsgate Stocks Jump on Deal News
"The financial terms of the deal are fair for both sets of shareholders," says one analyst, while another Wall Street observer focuses on the challenges and calls the price tag of the deal "low."
Lionsgate and Starz's stocks on Thursday jumped in early trading after news that the studio has struck a deal to acquire the premium TV company for $4.4 billion in cash and stock
As of 9:32 a.m. ET, Starz's stock was up 13.7 percent at $32.13. Over the past year, it has traded between $20.33 and $46.59. Lionsgate's stock at the time was trading at $23.04, up 10 percent. Over the past year, it has been trading between $16.21 and $41.41.
In acquisitions, the stock of buyers often decline as investors focus on the costs and risks, while acquired firms typically see their stock rise.
"The financial terms of the deal are fair for both sets of shareholders," Macquarie Securities analyst Amy Yong tells The Hollywood Reporter in explaining why Lionsgate shares also gained on Thursday. "The combined entity has unique growth prospects that bring together a studio-premium but still nimble to capitalize on some of the opportunities in a shifting media landscape.
Media investor Danny Leibowitz of media hedge fund Act II Partners tells THR that he sees the deal as particularly positive for the buyer. "Lionsgate got a good deal with a small premium ... and the price is lower than Starz was selling at in early February, after which it broke down. Ironically the breakdown was concurrent with a negative surprise in Lionsgate earnings, so the market assumed the prospect of a deal was off."
He added: "The deal indicates that they are not concerned with [the] tax inversion status, [meaning] Starz can use Lionsgate's 15 percent Canadian tax rate."
Drexel Hamilton analyst Tony Wible had a more bearish take on the deal though. "The merger essentially values Starz where it was earlier in the year and is a material discount to peer valuations," he wrote in a report. "While we believe there is a lot of strategic value in this deal, we believe the low price underscores the challenges/risks facing Starz. Furthermore, we don't believe investors ideally want a large portion of Lionsgate stock as the studio's equity value has been sliding since last year and is volatile."