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Long Awaited Spin-Off: Lionsgate Announced the Separation of its Studios and Starz TV Business

On December 22, 2023, Lionsgate announced that it is going to separate its studio business and the Starz TV network and streaming division. Screaming Eagle Acquisition, a SPAC company, agreed to acquire Lionsgate Studios, the entertainment unit of Lionsgate, in a deal valuing the company at $4.6bn. The Lionsgate parent company is expected to own 87.3% of the total shares of Lionsgate Studios while Screaming Eagle Acquisition will own the remaining 12.7%. Common shares of Lionsgate Studios will trade separately from Lionsgate’s Class A (LGF.A) and Class B (LGF.B) common shares as a single class of stock.

Lionsgate is a Canadian-American global mass media and entertainment company. Its main business includes Films and TV Series production, distribution, and streaming services. It owns a variety of subsidiaries including Summit Entertainment and Starz. One of the recent and biggest acquisitions Lionsgate made is eOne, which is an independent studio with TV production (Peppa Pig), film distribution, and music divisions across Europe, Canada, and Australia. Lionsgate has been considering several strategic changes to its business including the separation of Starz, Lionsgate’s television network business. This is probably due to the different valuation that Wall Street has on Lionsgate’s media networks and studio business. Content production business usually trades at a lower multiple(8-12x) compared to pure play networks which trade at around 10-14x EV/EBITDA because of the less steady revenue and cash flows generated. The announcement of separating Lionsgate’s Studios and the Starz TV network and streaming division will not only unlock value and let in more investments but also allow each separate company to focus more on allocating resources and developing strategies that best suit their line of business.

The transaction is expected to raise approximately $350 million of gross proceeds for Lionsgate, with $175 million from a committed PIPE and $175 million fromfrom the Screaming Eagle Trust. The proceeds are expected to be used to enhance Lionsgate’s balance sheet and facilitate strategic initiatives including the eOne acquisition which closed on December 27th. The deal also positions Lionsgate Studios as a platform-agnostic, pure-play content company with product portfolios including The Hunger Games, John Wick, The Twilight Saga, and Ghosts. According to Lionsgate’s CEO Jon Feltheimer, the transaction creates one of the world’s largest publicly traded pure-play content platforms. The deal retains Lionsgate’s highly attractive capital structure, with a low debt load and a low cost of capital. As a platform-agnostic studio, Lionsgate Studios will have more flexibility on how it monetizes its content library, it doesn’t have to chase the highest bids and can negotiate competitive rates and more long-term deal contracts. This will also make the business revenue more predictable and recurrent.

The news of a potential separation between Lionsgate’s two business segments has been out for a long time, so the recent stock price could not accurately reflect the public’s reaction to the deal. Morgan Stanley is serving as a financial advisor to Lionsgate, while Citigroup is the financial advisor to Screaming Eagle. Citigroup and Morgan Stanley are acting as co-placement agents for Screaming Eagle concerning common equity financing.

In conclusion, the separation of Lionsgate’s studios TV network, and streaming businesses through a SPAC merger deal will not only unlock value for the two separate companies but also increase the competitiveness of both companies in their sector specialties going forward.

Written by: Jessica Feng

Sources: Mergerlinks, Yahoo Finance, Lionsgate Press Release, Variety Magazine

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