The cash and stock deal got an OK from 98% of Lions Gate voters and 95% of Starz voters. The companies say all closing conditions are satisfied, including regulatory approvals.
The result means each previous share of LGF common stock has been reclassified into a 0.5 share of voting class (NYSE:LGF.A) and 0.5 share of nonvoting class (NYSE:LGF.B). Holders of Starz series A get $18/share in cash and 0.6784 shares of LGF.B for each share.
Holders of Starz's series B (STRZB +4.9%) get $7.26 in cash, 0.6321 shares of LGF.A and 0.6321 shares of LGF.B.
Existing LGF and Starz common shares will come off the NYSE and Nasdaq effective tomorrow.
Time Warner (TWX -1.6%) is lower the morning after America elected Donald Trump its next president -- the man who called deals like AT&T's (T +0.5%) $85B buyout pact "poison."
"Deals like this destroy democracy," Trump said at a recent rally speaking about the buyout. He said a Trump administration would never sign off on the acquisition since AT&T and CNN together would be "too much concentration of power in the hands of too few."
That likely includes ripple effects on what has been a fairly rapidly consolidating media sector. Lions Gate (LGF -0.6%) and Starz (STRZA -0.4%) are set to combine and a number of other deals are in the speculative stages as telecoms and content creators adjust to a shifting landscape.
AT&T looks forward to working with Trump and says it's still optimistic about the Time Warner deal, according to CFO John Stephens.
In an SEC filing, Starz (STRZA +0.7%) notes that in connection with its deal to merge with Lions Gate (LGF +1.2%), its chief financial officer is resigning as of May 1.
Scott Macdonald will leave his role then but will work in the meantime on the transition of the company's Finance and Accounting group.
In a letter to Starz employees, CEO Christopher Albrecht took the chance to update workers on the post-merger structure and leadership, saying he'll continue to lead Starz Networks as president and CEO, and report to Lions Gate CEO Jon Feltheimer.
Reporting to Albrecht will be COO Jeffrey Hirsch (who will have Chief Marketing Officer Alison Hoffman reporting to him), along with Chief Legal Officer David Weil, President of Programming Carmi Zlotnik, Executive VP of Finance Bill Bergmann, Executive VP of Communications Theano Apostolou and Executive VP of Human Resources Pamela Wolfe.
Starz Distribution's home entertainment business will be subsumed into Lions Gate's Worldwide Home Entertainment, and Starz Worldwide's TV distribution group will be similarly combined.
The company priced the $520M in debt at an interest rate of 5.875% -- lower than the 7.5% rate assumed in the company's pro forma statements reflecting its proposed tie-up with Starz (STRZA -1.1%).
It also said loans have been allocated under its $2B term loan B facility, which it expects to be issued at 99.5% and bear interest at Libor plus 3% (with a Libor floor of 0.75%). The pro forma statements had assumed that loan would be issued for $1.9B at 100% and at interest of Libor plus 3.75%.
The loans are set to fund part of the company's merger with Starz.
The company paid its dividend of $0.09/share in August that it had declared in June; forward yield at current pricing would have been 1.7%.
The film/TV studio signed a cash and stock deal to buy Starz for $4.4B in June. It's expected to provide "immediate" synergies, said Lions Gate CEO Jon Feltheimer, who added that the acquisition "checks off all the boxes we look for."
Lions Gate, up as much as 4.2% today, cruised to just a narrow gain at the close.
In a Sun Valley media conference tradition, cable mogul John Malone weighed in on one of his most frequent questions: evaluating the current environment for mergers and acquisitions.
"There's always M&A opportunities," he said. "I have nine different public companies I'm involved in, and they're always looking for opportunities."
As for cheaper European assets post-Brexit: "Cheap is a relative term; I think it depends on your longer-term view. I think Britain's gonna be fine; I think the EU is gonna be fine. I think there are gonna be some banking, capitalization issues that have to be dealt with."
He's coming off a $4.4B deal to combine his Starz network (STRZA +1.8%) with Lions Gate (LGF +3.1%), and "they're both subscale ... this gives them the opportunity to be bigger, be a little more aggressive in investing in content, trying new things."
Malone's more interested in the TV business, but Lions Gate will get a new outlet for its films after tough times at the box office: "Theatrical is a tough business and you can run hot and cold ... The question is can you tame the movie business to reduce the volatility?”
Asked about Viacom (VIA +3.1%, VIAB +3%) -- currently embroiled in a succession drama and (logically) speculation about combining it with other firms: “I’m hoping that all settles down and everybody is treated fairly,” said Malone. “Sumner [Redstone's] been a long-term friend and sometimes partner and sometimes 'frenemy.' You hate to see the stress of a family situation. I certainly hope it all works out to everybody’s benefit."
On Viacom's sale of a Paramount stake: "Would I? The theatrical side? No, that would not be where I would go." But Viacom has "got some great assets and right now because of the turmoil they're substantially undervalued."
It's highly accretive to earnings and free cash flow, positions us to achieve significant synergies," he said. "It's a transaction that creates a whole, greater than the sum of its parts, and is a combination that unlocks significant immediate and long term value for our shareholders.
After rising as much as 11.6% today, Lions Gate finished down 3.4%. STRZA wrapped up the day up 5.9% after rising as much as 14.7%.
He believes there are immediate cash savings available in not only the operational synergies, but the "extended benefit of being a Canadian multinational company" along with accumulated net operating losses.
Starz chief Chris Albrecht will continue to run that unit and is expected to join the executive committee as well, Feltheimer said.
The company has $4.6B in committed financing for the deal, it says, along with range for a $1B revolver that will be available for working capital.
Lions Gate (NYSE:LGF) agrees to buy Starz (STRZA, STRZB) in a cash and stock deal totaling $4.4B. Starz A class owners will receive $18 in cash along with 0.6784 of newly-created non-voting stock of LGF for each share of STRZA they hold. Starz B class owners will receive $7.26 in cash, 0.6321 of a share of LGF voting stock, and 0.6321 of a share of LGF non-voting stock.
The offer translates to $32.73 per A class share based on Lions Gate's 20-day moving average price.
A conference call is set for 9 ET.
STRZA +15% to $32.50, LGF +8.2% to $22.65 premarket.
It's been discussed extensively, but a deal for Lions Gate Entertainment (NYSE:LGF) to buy Starz (NASDAQ:STRZA) is now in advanced talks, Bloomberg reports.
Lions Gate is up 5.1% after hours; it had gained 4.1% during the regular seesion. Meanwhile, STRZA is up 6.9% in the postmarket session after gaining 2.7% today.
A deal could come in the next few days valuing Starz at more than $30/share (postmarket quotes have Starz at $30.20 now), sources told Bloomberg. But negotiations may come down to contentious discussions between John Malone (who controls Starz voting stock) and Starz Chairman Greg Maffei on one hand, and Mark Rachesky, whose MHR Fund Management is Lions Gate's biggest shareholder.
A deal would be mostly cash with some stock, and could be held up by Starz's unfinished carriage talks with DirecTV.
Lions Gate Entertainment (NYSE:LGF) is up 6.9% to its highest point in five weeks on no catalysts other than some peer M&A today, in DreamWorks Animation's $3.8B deal to be acquired by Comcast.
Lions Gate has been linked in the past year to heavy merger rumors with John Malone's companies, after Malone's Liberty Global (NASDAQ:LBTYA) and Discovery Communications (NASDAQ:DISCA) made a strategic deal with the studio -- and then Malone floated public comments regarding a potential tie-up/merger with Starz (NASDAQ:STRZA), in which he also holds an interest.
Bloomberg analyst Paul Sweeney figures Comcast's deal price means a multiple of at least 19.5 times DreamWorks Animation's 2016-2017 EBITDA -- which multiple is a 28% premium to Lions Gate, which runs similar TV and movie interests.
And Lions Gate may be more attractively valued than during the fall rumors, after a weak fiscal Q3 tanked shares in early February and the studio's recent films, like The Divergent Series: Allegiant, are underperforming.
Lions Gate (NYSE:LGF), frequently the subject of merger rumors of late, could get pushed into a deal by activists who have been ramping up stakes in the indie studio.
Alibaba and Netflix (NASDAQ:NFLX) are linked by analysts as possible suitors with an eye to building up content stores, The Deal notes.
Jana Partners and Barry Rosenstein lifted their share of the studio to 5.7% last month, making it No. 3 among outside shareholders. And Eminence Capital has built a stake near 1%. Canadian companies such as Lions Gate require only a 5% stake to requisition a special shareholder meeting to press board changes.
As usual, John Malone is the X-factor, with a distinct interest over the past year in what happens to Lions Gate. Last fall, Liberty Global (NASDAQ:LBTYA) and Discovery Communications (NASDAQ:DISCA) entered a long-term strategic deal with the studio (Malone has large stakes in those two, along with a 3.4% LGF stake taken in February). And he had floated an LGF tie-up with Starz (NASDAQ:STRZA), in which he also holds a stake among others.
Another likely merger appeal: With a Vancouver base, Lions Gate could serve as part of a tax inversion deal.
With the review of Charter Communications' (NASDAQ:CHTR) buyout of Time Warner Cable (NYSE:TWC) proceeding apace at the FCC, the agency is sending requests tied to cable mogul John Malone's holdings not only in Charter but in content companies like Discovery (NASDAQ:DISCA) and Starz (NASDAQ:STRZA), which supply Charter rivals.
The agency has sent letters to the companies that list Malone as their chairman -- Liberty Media (NASDAQ:LMCA), Liberty Interactive (NASDAQ:QVCA) and Liberty Broadband (NASDAQ:LBRDA), which holds 26% of Charter -- and asked about Malone's influence over those entities as well as the content creators and DirecTV.
It's a "pretty meaningful request," says BTIG's Rich Greenfield, while Craig Moffett points at the Comcast deal for NBCUniversal in saying that Malone's tangled ownership is "probably not a big issue."
Malone has a 46.6% voting interest in Liberty Broadband, which would be entitled to vote no more than 25.01% of shares in the new combination, Charter has said. His interests in Discovery and Starz are "minority interests" where he wouldn't control day-to-day decisions.
The American Cable Association (representing smaller providers) argues that Malone's interests aren't insubstantial and that consumers can expect higher rates unless the FCC imposes conditions on the deal.
With traditional pay TV subscribers on the wane, a potential purchase of Starz (STRZA +5.6%) is not the best way to spend AMC Networks' (AMCX -1.1%) "M&A powder," says Stifel Nicolaus' Benjamin Mogil.
Adding Starz won't change AMC's affiliate positioning, he writes, though for Starz (up solidly today), the combination makes more sense as a way to accelerate a possible discussion with Lions Gate (LGF +0.9%).
He rates AMC Networks as a Buy and Starz at Hold.
A deal here could speed up additional consolidation in the space, writes Macquarie's Amy Yong, who holds a Neutral rating on AMCX and Outperform on STRZA.
Bloomberg reported the preliminary talks, which come after a few abortive attempts by suitors to acquire Starz in the past year. “They probably ultimately need to combine with others at least from a bundler point of view, if not from an ownership point of view,” John Malone -- Starz's top individual investor -- said last week.
An AMC deal would require the sign-off of the Dolan family, who control voting power after AMC was spun off from Cablevision four years ago.
Starz has a market cap of $3.9B and an enterprise value that's grown to more than $5B from $4B last year, during a period when it was often linked to Lions Gate Entertainment (NYSE:LGF). Shares in Starz are up 26.1% over the past 12 months.