Amid 'Hunger Games' Heat, Should Lionsgate Cash Out as Stock Nearly Triples?

Courtesy of Lionsgate

As the third film in the franchise gets set to hit theaters, analysts debate whether the studio should go it alone or allow itself to be acquired

A version of this story first appeared in the Nov. 28 issue of The Hollywood Reporter magazine.

Alibaba Group's stalled effort to purchase Lionsgate Entertainment chairman Mark Rachesky's 37 percent stake has raised an all-too-familiar question: Should the studio — which releases The Hunger Games: Mockingjay — Part 1 on Nov. 21 — go it alone as its biggest film franchise nears its end or allow itself to be acquired by a larger conglomerate?

The verdict seems to be that Lionsgate is so hot right now that it doesn't much matter, especially since The Hunger Games bonanza could keep paying dividends for the foreseeable future. There's a Hunger Games stage play in the works and some analysts presume that movie prequels are likely, keeping the franchise alive well beyond Nov. 20, 2015, when the last of the series, The Hunger Games: Mockingjay — Part 2 opens. Executives are also exploring Hunger Games theme park attractions.

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Beyond The Hunger Games, Lionsgate's TV production segment is on fire, growing revenue 140 percent in the most recent quarter and accounting for $155 million of the company's overall revenue of $553 million on the back of hit shows like Orange Is the New Black, Nashville, Anger Management and The Wendy Williams Show.

"Lionsgate is well positioned … to satisfy the growing hunger globally — on television networks and online, for quality TV series while also sustaining its recent lofty film performances," FBR analyst Barton Crockett wrote in a Nov. 14 research note.

Several potential franchises in the movie pipeline include Gods of Egypt (scheduled for Feb. 12, 2016), Now You See Me 2 (June 10, 2016), Power Rangers (July 22, 2016) and presumably multiple sequels to Divergent, which made $288.7 million worldwide. Analysts are bullish on the slate, even if none of the franchises are expected to match The Hunger Games, the first two of which brought in nearly $1.6 billion. Crockett estimates Mockingjay – Part 1 will bring in $850 million, more than the original but about $15 million shy of the sequel.

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With all of Lionsgate's success, it's no wonder that China's dominant Internet company wants a piece of it. Hence, on July 14 the studio announced it was partnering with Alibaba for a streaming service in China, and it was reported on Oct. 24 that Alibaba also was interested in acquiring Rachesky's stake in the studio.

To be sure, Rachesky may still sell at least a portion of his 51 million shares to Alibaba for a massive profit, considering he paid $7 a share and the stock closed Nov. 17 at $34.45. But Lionsgate, in addition to being an attractive acquisition target for a larger company, is also well-positioned for acquisitions itself. "We view Lionsgate as both a potential buyer of assets and an M&A target, at least for the stake owned by large holders," Stifel analyst Benjamin Mogil wrote in a Nov. 7 research note.