Lionsgate today confirmed today that it remains on track to separate Starz and its studio business despite volatile markets noting that it’s now focusing on spinning out the studio, instead of the other way around.
“As negotiations progress we have increased our focus on the possibility of spinning our studio business, creating a number of financial and strategic benefits. In that regard, we are continuning productive negotiations with prospective strategic and financial partners on both sides of our business,” the company said in an SEC filing Wednesday.
It said it remains on a path to complete a transaction despite “volatile market conditions.”
Lionsgate initially announced last fall it was exploring strategic options that included a potential spinoff Starz, splitting the businesses in order to realize greater value for both as separate entities with a deal to be announced by late summer to close in early spring. That deadline has slipped a bit but the company today confirmed it’s still on track for a deal. It was in August that Lionsgate executives first noted that talks had expanded to include the studio as well as Starz, given interest from potential investors in that business.
Lionsgate acquired Starz for $4.4 billion in 2016. The cable network and streaming service has been growing fast under Jeff Hirsch but failed to provide a stock price bump for its parent. Bringing investors in on both or either side of the business in a spinoff establishes a valuation.
Amazon acquired MGM for $8.4 billion last spring after all. Lionsgate executives would argue that their library is newer, and as good or better. Lionsgate’s market cap today is about $1.8 billion.
Potential partners are said to include Vivendi’s Canal+ and private equity, among others. A separation could also make both the studio and Starz easier targets for more M&A down the road. Much of that has stalled in the current economic moment of depressed stocks, high and rising interest rates, record inflation and general uncertainty. Separately, there’s also been a recent strategic rethink of content spending at streamers.
At a media conference earlier this month, Lionsgate vice chairman Michael Burns stressed that interlocking relationships between the two business would continue. The company also announced Wednesday that its Starzplay international streaming service will rebrand as Lionsgate+ in 35 countries outside the U.S. in a redesign rolling out tomorrow.
Lionsgate shares are trading up a hair (0.25%) this morning at $8.17. That’s near its 52-week low of $7.50 and less than half of its high near $19.
, but is now increasing its focus on spinning off and selling off a minority stake in the studio business given greater buyer interest in that asset. The studios business produces films and TV series and includes a large library of more than 17,000 titles. The company indicated that it is currently in discussions with multiple potential strategic and financial buyers.
For Wall Street, it makes little difference to current shareholders which of the two assets is spun-out and which remains the so-called ‘parent’ asset, said Cowen analyst Doug Creutz, fresh cash does.
“In order to create value, the company needs to find an external buyer who will put actual capital up for one or both assets, both creating a mark for the asset and helping lower company leverage,” he said. Current market conditions aside, the recent strategic rethink of content spending at some, if not all, large streaming services may also be weighing on potential valuation.