Lionsgate to acquire Starz for $4.4bn

Lionsgate produced Mad Men’s seven seasons

Mad Men studio Lionsgate is set to acquire US cablecaster Starz for a combination of cash and stock totalling US$4.4bn.

Lionsgate said today the acquisition created “a global content powerhouse positioned to capitalise on growth opportunities worldwide.”

The deal, which had long been rumoured and was even said to have been derailed after Lionsgate’s post-Brexit share slump, will bring together the company behind critically acclaimed AMC drama Mad Men and Netflix’s Orange is the New Black with a cable business that counts more than 32 million US subscribers.

The agreement includes Starz’s 17 premium pay TV channels and associated on-demand and online services under Starz Networks, as well as its global content distribution arm Starz Distribution.

The deal has been approved by the boards of both companies and will be submitted to their respective shareholders for approval as well as to regulatory authorities, Lionsgate said. Closing is expected to occur by year-end.

Lionsgate, also behind hit movie franchises The Hunger Games and Twilight, intends to fund the cash portion of the deal with a mix of newly issued bank and bond financing.

“The combination of Lionsgate and Starz brings significant scale to our portfolio of content and distribution assets and will enable us to compete successfully in today’s rapidly evolving global entertainment marketplace,” said Lionsgate chairman Dr Mark H Rachesky.

Chris Albrecht

“By bringing together complementary resources, premium-quality intellectual property and exceptional management, this strategic transaction positions us extremely well to unlock the underlying value of our content to create substantial lasting value for our shareholders.”

Starz CEO Chris Albrecht, who earlier this week signed a new contract, added: “Our similar entrepreneurial cultures and shared vision of the future will make this alliance an incredible fit that creates tremendous value for our shareholders, great content for our audiences and limitless opportunities for our newly combined company.”

According to the two parties, the merged business will have a 16,000-title film and TV library. It will be “the largest independent television business in the world, with 87 original series on 42 US networks and a feature-film business that has generated more than US$7bn at the global box office over the past four years.”

Lionsgate has been steadily building up its business over the past five years, notably with the 2012 US$412.5m acquisition of Summit Entertainment, last year’s US$200m stake in Pilgrim Studios and, more recently, a joint venture with New Regency, the US studio behind hit movies The Revenant and Gone Girl.

Aside from Mad Men, it has also made Manhattan for AMC, Nurse Jackie for Showtime, Nashville – originally for ABC but now CMT and Hulu – The Royals for E! and plus Deadbeat and Casual for Hulu.

The company’s TV arm has made a virtue of leading new original scripted players into the space and was in fact behind Starz’s first original series Crash. Since then the latter has stepped up its focus on this area, ordering shows including Spartacus, Da Vinci’s Demons, Black Sails, Outlander, The White Queen, Power, Flesh and Bone and The Girlfriend Experience.

Based in the US, the two companies also have overseas distribution businesses. Lionsgate has a UK operation that serves as a beachhead to Europe and last year made its first local investment.

Starz claims 24 million subscribers for its flagship network and 32 million for Starz Encore (a higher tier proposition which in some instances includes the standard Starz), plus a growing OTT business both at home and overseas, where it has been expanding internationally through the launch of OTT service Starz Play, notably in the Middle East.

Today’s merger announcement comes after a protracted period of speculation due to billionaire cable mogul John Malone’s shared interest in the two businesses, having spun-off Starz from his Liberty Media venture in 2013.

As controlling shareholder in Starz, Malone last year gained a seat on the Lionsgate board as part of a stock swap and subsequently increased his influence via moves through joint interests in Discovery Communications and Liberty Global.

Through Orange is the New Black, Lionsgate has acted as supplier to Netflix but Malone and Starz have increasingly seen that business as a threat to their own. Starz pulled its content from the US streamer in 2011, removing Disney movies at the same time, but Netflix fired back with its own Mouse House deal the year after, depriving Starz.

“This transaction unites two companies with strong brands, complementary assets and leading positions within our industry,” said Lionsgate CEO Jon Feltheimer and vice-chairman Michael Burns, commenting on today’s announcement.

“Chris Albrecht and his team have built a world-class platform and programming leader, and we’re proud to marshal our resources in a deal that accelerates our growth and diversification, generates exciting new strategic content opportunities and creates significant value for our shareholders.”

Financing for the deal was provided by JP Morgan, Bank of America Merrill Lynch and Deutsche Bank.