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Will the M&A brushfire raging through Hollywood soon engulf Lionsgate? Deal chatter grew louder Jan. 24 when the mini-studio’s vice chairman Michael Burns said on CNBC that he’s “very interested” in consolidation. So is the company predator or prey in 2018?
So far, Wall Street observers haven’t quite made up their minds. “His point is Lionsgate has preserved its agility — they can be a buyer and seller,” says Macquarie analyst Amy Yong. Still, a large pool of potential suitors circle, led by Verizon, Amazon and Comcast, plus a likely combined version of CBS and Viacom and even the Murdochs‘ pared-down 21st Century Fox, looking to rebuild after selling most of itself to The Walt Disney Co.
Certainly, Disney’s potential $52.4 billion deal for the Fox assets and AT&T’s $85.4 billion bid for Time Warner are weighing on Lionsgate CEO Jon Feltheimer as scale becomes a priority for traditional media players to compete with such giants as Amazon, Netflix and Apple. “It almost makes you realize that urgency has dawned on them,” notes CFRA Research analyst Tuna Amobi.
But this isn’t the first time Lionsgate has been touted as a takeover target, only to be left at the altar. In 2017, toy giant Hasbro looked at buying Lionsgate, but the companies couldn’t agree on a price. That left Feltheimer, 66, looking longingly at the landscape, say sources. Since taking over the Vancouver- and Santa Monica-based company in 2000, he has cobbled together a diversified film and TV studio, spending more than $5 billion on acquisitions — $4.4 billion for Starz, $413 million for Summit Entertainment, $220 million for Artisan, $50 million for Trimark and $27 million for Debmar-Mercury. The studio even made a recent play for The Weinstein Co. assets (though it’s not said to be in the final mix).
But now Feltheimer and media mogul John Malone, whose companies own a stake in Lionsgate, appear more receptive to pulling the trigger on an outright sale. Malone already sold shares of the studio’s surging stock in late December. “I have always thought that Lionsgate is a fund sweeping up loose, smaller film and TV assets that would eventually find it impossible to find enough targets to grow significantly larger via this strategy — at which time it would itself be willingly acquired,” says Hal Vogel, former entertainment industry analyst and now CEO of Vogel Capital Management. “They might have now reached that point.”
And a recent hot streak in film and TV could grease the wheels. As major studios have focused on big-budget franchise tentpoles, Lionsgate, which concluded its Hunger Games series in 2015, has rebounded with several midbudget hits, including La La Land ($446 million worldwide on a $30 million budget), the Julia Roberts drama Wonder ($265 million on a $20 million budget) and the John Wick movies.
Lionsgate’s TV arm, led by chairman Kevin Beggs, has seen scripted programming revenue skyrocket in recent years on the strength of the shows it produces, including Orange Is the New Black, Nashville, Greenleaf and Dear White People.
Such a prolific output could be appealing to Shari Redstone, whose Viacom networks have struggled to create hits, or to the Murdochs, who are selling their 20th TV studio to Disney. In addition, Starz, which Lionsgate picked up in December 2016, gave the company a premium cable channel with 25 million paid subscribers and a 1 million-sub streaming service.
With Netflix and Hulu only getting bigger in the streaming space, and Apple and Facebook muscling into TV and film, the market now sees Lionsgate as a hot takeout candidate. “Also, do not forget that John Malone is a key player here,” notes Vogel, “and he may have some financial engineering ideas in mind.”
Besides sitting in Feltheimer’s boardroom, Malone, 76, holds voting control of Liberty Media and Liberty Global and has big stakes in Discovery Communications as well as Lionsgate. He could move to consolidate his TV holdings in the face of fast-growing competition from the streamers. “You really need scale and reach today as well as production capacity,” says Piper Jaffray analyst Stan Meyers. “If they [Lionsgate] don’t get acquired, their natural move is to grow themselves.”
Lionsgate, with a current market cap of about $7 billion, would still be a relatively small content play for companies like Verizon, Comcast or Amazon. Which could make it even more attractive. As Burns said on CNBC, “We’re a pint-sized bite for some of these giant market cap companies … so we would talk to anybody at any time and see if a deal makes sense.”
This story first appeared in the Jan. 31 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.
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