Magazine article Variety

Lionsgate Chiefs Talk Starz Deal

Magazine article Variety

Lionsgate Chiefs Talk Starz Deal

Article excerpt

being small has been both an asset and a hindrance to Lionsgate. With about 750 employees, the studio can be nimble and entrepreneurial, but, as a publicly traded company, it's vulnerable. Its stock can rise or fall based on the fortunes of a single film - a fate that Disney or Warner Bros., cogs in sprawling conglomerates, don't suffer.

The need to get bigger has spurred Lionsgate to take its riskiest bet. Two weeks ago, the studio closed a $4.4 billion deal for Starz, gambling that partnering with the premium-cable player will help stabilize Lionsgate's revenue streams and provide it with a distribution platform for its movies and TV shows.

"It gives us more touch points to the consumer," CEO Jon Feltheimer said in his first interview since the deal closed. "It's a larger marketing platform. Frankly, it gives us more places to put content."

So far, the market has been cool to the merger, with some Wall Street observers questioning its benefits. "We think this is a deal that happened because management needed a deal to happen, given poor recent financial performance and a declining share price," says Doug Creutz, a media analyst for Cowen & Co.

Lionsgate stock has been flat, at about $20, since the deal was announced - far off its 52-week high of $41.07 in November. Some analysts have questioned the amount of debt the studio has taken on as part of the deal. Initially, the company will shoulder a debt ratio of five to five and a half times earnings.

Lionsgate vice chairman Michael Bums maintains that both companies will throw off enough cash to service the debt. Additionally, he says, the Starz buy does not preclude Lionsgate from making other deals."If we think a transaction is accretive - if we think there's a smart way to finance it - we would happily do it."

Starz may give Lionsgate greater scale, but it doesn't rectify creative problems in the studio's film business. …

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