Lionsgate to Acquire Starz, a Pay Channel, for $4.4 Billion
The New York Times
By Michael J. de la Merced and John Koblin
July 1, 2016
The movie studio Lionsgate agreed on Thursday to buy Starz, the premium cable channel home to hit shows like ”Outlander,” for about $4.4 billion in the latest round of media consolidation.
The deal brings an end to years of speculation about the fate of Starz, which was spun off from the Liberty media empire controlled by the billionaire John C. Malone.
Mr. Malone helped orchestrate a complicated stock swap last year that gave Lionsgate a stake in Starz — and himself a board seat on Lionsgate. The mogul controls the voting power at Starz as well.
Lionsgate, the studio behind ”The Hunger Games” movie franchise and ”Mad Men,” had long been considered as a likely buyer. Adding a cable channel could help provide scale at a time when other studios have been swallowed up by bigger entertainment giants, while providing ballast for a sometimes volatile movie business.
Within the competitive space of original programming, Starz has moved from an also-ran to a formidable player in just the last few years. Dramas like ”Power” and ”Outlander,” both of which premiered in 2014, have received good ratings and reviews. ”The Girlfriend Experience,” a half-hour drama that debuted in April, was also warmly received by critics.
In mid-July, beginning with the third season of ”Power,” Starz will premiere new episodes of original programming on Sunday nights, a sign of confidence in its lineup as it goes head-to-head against rivals like HBO and Showtime (the network had previously aired new episodes on Saturday nights). And like HBO and Showtime, Starz introduced a stand-alone app this year.
Starz’s resurgence has been led by Chris Albrecht, the former chief executive of HBO.
In a call with reporters on Thursday morning, Lionsgate’s chief executive, Jon Feltheimer, suggested that Mr. Albrecht would retain an important role in the combined company. ”We expect Chris not only to continue to run Starz, but also to have a major participation and leadership of the entire combined company,” he said.
Earlier this week, Starz announced that Mr. Albrecht had renewed his contract to remain as chief executive through 2020.
Speculation about a combination of Lionsgate and Starz had been percolating, heating up early last year when Mr. Malone engineered a stock swap involving the two companies. But there were several complicating factors then, including the ownership percentages that Mr. Malone and Lionsgate’s biggest shareholder, the investor Mark Rachesky, would hold.
As the talks progressed, other potential roadblocks emerged, like Starz’s negotiations with DirecTV and the prospect of Britain’s vote to leave the European Union affecting Lionsgate’s ability to garner the necessary financing.
The terms of the Lionsgate-Starz deal are complex. Lionsgate will first change its stock, with each share splitting into half of a voting share and half of a nonvoting share.
Then, owners of Starz A shares will receive $18 a share in cash and 0.6784 of a nonvoting Lionsgate share. Holders of Starz B shares will receive $7.26 in cash and both 0.6321 of a share of Lionsgate voting stock and 0.6321 of a share of Lionsgate nonvoting stock.
The offer values Starz A shares at $32.21 each, based on Wednesday’s closing prices, representing a roughly 14 percent premium.
Class A shares in Starz rose more than 13 percent in early trading on Thursday, to $32.05.
The deal is expected to close by the year’s end, pending approval by shareholders and regulators.
Advising Starz were LionTree Advisors, the boutique investment bank that has long advised Mr. Malone’s empire, and the law firm Baker Botts. A special committee of Starz’s board received advice from the Raine Group and the law firm Weil, Gotshal & Manges.
Lionsgate received advice from PJT Partners, JPMorgan Chase, Bank of America Merrill Lynch, Deutsche Bank, Credit Suisse and the law firms Wachtell, Lipton, Rosen & Katz and Dentons.