Lionsgate, Starz Invite Shareholders to Special Meetings to Approve Merger

John Malone - Getty - H 2016
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John Malone - Getty - H 2016

The two companies revealed more details about their proposed $4.4 billion tie-up in an SEC proxy statement filed Thursday.

Lionsgate and Starz on Thursday revealed more details of their $4.4 billion merger, including a share reclassification proposal that benefits billionaire investor John Malone, as they set out to woo investors.

In a joint proxy statement, the merger partners invited shareholders to special, as-yet unscheduled meetings to approve their deal. Lionsgate and Starz in their latest SEC filing also echo earlier ones by pointing to proposed operating cost synergies expected to reach $50 million and annual cash tax savings expected to exceed $150 million through fiscal year 2021.

The annual cost savings are expected to come from eliminating jobs and the advantages of scale in production, manufacturing and marketing costs. But the proxy statement also talks at length about the architect of the merger, John Malone.

Malone, who owns big stakes in both companies, is hoping the deal will create a new major media player and ensure his entertainment content assets survive and thrive in the face of increased industry change and disruption. And Lionsgate's share reclassification plan, in which the studio pays a premium for Starz shares, is the route to that goal.

The SEC filing, signed by Lionsgate CEO Jon Feltheimer and Starz CEO Chris Albrecht, outlines plans for Lionsgate to create a new class of non-voting shares for regular owners of Starz to receive alongside cash, while Malone and other holders of super-voting Starz shares will receive more voting rights.

That structure will see Lionsgate effectively reclassify each of its shares into 0.5 voting and 0.5 newly created non-voting shares, with Lionsgate paying $18 per share in cash and 0.6784 shares of non-voting stock for each Starz A common share, for a total value of $32.73 per share.

Holders of Starz B shares, on the other hand, are offered $7.26 per share in cash, 0.6321 shares of its voting stock and 0.6321 shares of non-voting stock. "After considering the alternatives available to Starz ... Dr. Malone believes that the structure of the merger is preferable to other structures because it permits holders of Starz series A common stock to immediately realize value for a portion of their investment, while also providing Starz stockholders with the opportunity to participate in the future success of the combined company," the filing states.

"Given the current prospective competitive landscape in the industry in which Starz operates and Starz’s size relative to its competitors, Dr. Malone believes that the timing and structure of the merger are integral to the continued growth and success of Starz in its capacity as a part of the combined company," the proxy statement adds.

The document also argues that the market premium for the Starz shares, which directly benefits Malone as his 32 percent voting power in the premium cable channel is turned into voting and non-voting Lionsgate shares, is deserved. "After consideration, the Starz special committee and the Starz board of directors has determined that the merger is substantively and procedurally fair to and in the best interests of Starz and the unaffiliated shareholders of Starz," the filing states.

Lionsgate and Starz also offer stand-alone projections for their revenues through fiscal 2021, and separately project revenues for a combined Lionsgate-Starz entity, should a merger be approved, to rise from an estimated $4.55 billion in fiscal 2017 to $5.46 billion in fiscal 2021.

The acquisition of Starz is expected to be completed by the end of the year.