Discovery, Liberty Global To Take Stakes in Lionsgate

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Lionsgate CEO Jon Feltheimer unveiled a "deal in principle" that sees Discovery CEO David Zaslav and Liberty Global president and CEO Michael Fries join his board.

Lionsgate on Tuesday moved a step closer to a possible merger with Starz premium cable channels on news that Liberty Global and Discovery Communications plan to each pay $195 million for separate 3.4 percent stakes in the indie studio.

The studio also announced that it is developing a one hour drama set in Britain, Rook, with Twilight author Stephenie Meyer for Hulu and a major U.K. broadcaster.

Lionsgate CEO Jon Feltheimer during an analyst call Tuesday unveiled the "deal in principle" for Discovery CEO David Zaslav and Liberty Global president and CEO Michael Fries to join his boardroom. Both companies, which will acquire around 5 million shares of Lionsgate, are controlled by Liberty Global's John Malone, who already has a seat in the studio's boardroom.

Terms of the deals with Discovery and Liberty Global include both companies acquiring their Lionsgate stakes from MHR Fund Management LLC, which is controlled by Lionsgate chairman Mark Rachesky. Rachesky's stake in Lionsgate in 2011 denied activist shareholder Carl Icahn a proxy fight win over the studio.

A key ally of Feltheimer and top management at the studio, Rachesky was last year reportedly in talks to sell his 37.4 percent stake to Chinese e-commerce giant Alibaba, led by chairman Jack Ma. Instead, he's now done a deal with Discovery and Liberty Global to get top execs from both companies at his side in the Lionsgate boardroom, while Rachesky retains a 28 percent stake in the studio.

"Mike and David are two of the best CEOs, not just in the entertainment business, but anywhere. Clearly, our business is becoming more global. The opportunity to have them on our board and investing in our company and to work on a number of strategic alliances that we have talked to them about is really significant," Feltheimer said of welcoming Zaslav and Fries to his boardroom.

"We're very enthusiastic about this alliance with Lionsgate and I'm pleased to join chairman Mark Racheksy and the rest of the Lionsgate board," Liberty Global's Fries said in a statement Tuesday.

For his part, Zaslav looked to Lionsgate's expanding TV business for pipeline content.

"As with all our creative partners, we look forward to telling world-class stories with Jon and the deep management team at Lionsgate, and further strengthening Discovery's content pipeline across our linear and digital platforms around the world," he said in his own statement.

Other changes in the Lionsgate boardroom include company founder Frank Giustra stepping down, and Emily Fine, a designee of Rachesky's MHR Fund Management, joining the board.

The stake purchases follow Liberty Global's Malone and Lionsgate's previous advanced merger talks. "Starz has a great future, but that doesn't have anything to do with what we're doing," a reticent Feltheimer said when asked about Starz by an analyst.

Feltheimer added the expected stake purchases from Malone-controlled Discovery and Liberty Global should generate more business between the partners after commercial agreements were signed. "The commercial arrangements between the parties creates a number of touch-points in terms of development of product, in terms of a preferred partner for relationships," he said.

Discovery and Liberty Global previously jointly acquired U.K. TV producer All3Media to strengthen their content businesses. Malone already has a 3.5 percent stake in Lionsgate. That followed Lionsgate in Feb. 2016 unveiling a stock exchange deal with affiliates of Malone.

Also Tuesday, Feltheimer said his company is developing the Rook drama with executive producer Meyer as it expands its relationship with the Twilight author. The one hour series will feature a female protagonist with "extraordinary powers" who is employed by a mysterious British government agency responsible for defending Britain from supernatural beliefs.

Meyer brought the project, which adapts an "action-packed genre novel," to Lionsgate. Twilight, which is celebrating its tenth anniversary this year, has seen Meyer's books sell more than 100 million copies and the movie franchise gross over $3.3 billion worldwide for Lionsgate's Summit label.