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Lionsgate announced Friday it has closed its leveraged buyout of Summit Entertainment in a deal for $412.5 million in cash and stock and the assumption of Summit’s $500 million debt.
The $912.5 million deal brings together two of Hollywood’s biggest independent studios. The privately owned studio behind the hit Twilight movie franchise will now be part of the mini-conglomerate that will release The Hunger Games movie in March and has such TV series as Mad Men and Boss.
Lionsgate funded the purchase with $55 million of its own existing cash, $45 million of cash from newly issued convertible notes, $50 million worth of Lionsgate common stock and $20 million of cash or stock to be issued by Lionsgate in the next 60 days. The remaining $252.5 million apparently comes from cash that Summit had on hand.
At the closing, Summit also is refinancing its $500 million in debt, secured by Summit’s assets. Lionsgate says that while the debt must be paid off by 2016, it anticipates repaying the loan well before the maturity date thanks to significant cash flow that is expected. That would include money from the release this November of the final Twilight movie, Breaking Dawn: Part 2.
Lionsgate says that it expects this acquisition will actually help lower its debt, which is nearly $600 million.
Both the Lionsgate and Summit labels are to continue in the production and distribution of films, although, according to the announcement, “the combined company expects to realize significant synergies through the consolidation of administrative and other costs.”
This means there will be layoffs ahead as the two companies, which both have production, domestic distribution and international sales divisions, are brought into one organization.
“This transaction continues Lionsgate’s long-term growth strategy of building a diversified worldwide media company through a combination of disciplined, accretive strategic acquisitions and organic growth while maintaining a solid balance sheet,” Lionsgate co-chairman and CEO Jon Feltheimer and vice chairman Michael Burns said in a statement. “We are uniting two powerful entertainment brands, bringing together two world-class feature film franchises to establish a commanding position in the young adult market, strengthening our global distribution infrastructure and creating a scalable platform that will result in significant and accretive financial benefits to Lionsgate shareholders. Rob Friedman and Patrick Wachsberger have built a remarkable organization, and we’re pleased to welcome Summit’s talented team to the Lionsgate family.”
Despite the reference to Friedman and Wachsberger, the announcement leaves unclear their role in the newly merged company. There had been speculation that Friedman would take a key role in the movie production and distribution area while Wachsberger would use his experience in foreign sales to bolter the enterprise. However, at this point there is no indication that they have a commitment to remain as executives. Both Friedman and (especially) Wachsberger, as well as other Summit executives, stand to receive millions from the sale.
This will also mean another big payday for Summit’s investors, who collected money last year when Summit was refinanced. The biggest investor is Peak Group Holdings, which includes Suhail Rizvi‘s Rizvi Traverse Management, Jeff Skoll‘s Participant Media, Emilio Diez Barroso‘s Nala Films and entities affiliated with the Omar Amanat family trust. Barroso is the great-grandson of Televisa founder Emilio Azcárraga Vidaurreta.
JP Morgan, Barclays Capital and Jefferies took the lead on financing the acquisition for Lionsgate. JP Morgan, Barclays Capital and Jefferies also served as financial advisers to the company. Barclays Capital provided a fairness opinion to Lionsgate. Wachtell, Lipton, Rosen & Katz served as outside legal counsel for Lionsgate. Liner Grode Stein LLP and Skadden, Arps, Slate, Meagher & Flom LLP served as outside legal counsel for Summit.
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