Lionsgate's Starz Stake Deal "Precursor" to Eventual Merger, Analyst Says

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John Malone

Stock in Lionsgate and Starz jumped in value on news of a share swap with cable pioneer John Malone.

Stock in Lionsgate and Starz jumped sharply Wednesday on news that cable pioneer John Malone will swap shares for a seat on the indie studio's board of directors. 

Besides more collaboration between Lionsgate and Starz, FBN Securities analyst Robert Routh said the stock exchange agreement is a "precursor" to an eventual merger of the two entertainment companies. "We have always thought it is likely at some point Starz considers a strategic transaction with an entity such as AMC Networks or Lionsgate, and clearly from today’s announcement that is what is taking shape," Routh said in an investors note issued on Wednesday.

The share swap with Starz comes as TV production revenues accounts for a growing share of Lionsgate's overall business.

Evercore ISI Media analyst David Joyce in his own note said Lionsgate will gain a stronger content-buying partner and Malone's expertise in its board room. "Perhaps there can be some synergies in time with Lionsgate's other premium movie channel investment partnership, 31%-owned EPIX (with Viacom and MGM Studios)," he added.

"Starz possibly gains more content access and evolving platform insight, as well as potential new international exposure given Lionsgate's platform," Joyce added. Shares in Lionsgate rose $2.39, or 8 percent, to $32.08 during mid-morning trading on the New York Stock Exchange.

Wunderlich Securities analyst Matt Harrigan said Lionsgate, John Malone and Starz combining forces underlined the indie studio's continuing business smarts. "Of course, the deal is for Starz stock and Lionsgate can be very integral to upgrading Starz programming. Great to have Malone on board for image," he said in a statement to The Hollywood Reporter.

Starz stock rose $1.03, or 3.36 percent, to $31.73 on the NASDAQ Exchange on Wednesday morning. Once the share swap is completed, Lionsgate will emerge with a 4.5 percent stake in Starz and 14.5 percent of the voting shares.

Malone will remain Starz’s largest voting shareholder, holding around 6.1 percent of equity and around 32.1 percent of the voting power.