Lions Gate Reportedly In Talks To Buy Starz, Stocks Gain

Per Bloomberg, Lions Gate Entertainment Corp. (NYSE:LGF) is in advance negotiations to buy media and entertainment company Starz (NYSE:T) . Shares of Lions Gate and Starz gained 7.6% and 9.1%, respectively, in the after-hours trading session on Jun 29, 2016 amid speculations about the buyout.

According to sources, Lions Gate may offer over $30 per share for the deal. Yesterday, Starz closed its trading session at $28.25. However, the deal has not yet been finalized and talks may fall through. The companies are yet to reach a consensus over the price and voting shares.

One of the major impediments for the aforesaid deal is Starz’s impending carriage negotiation with AT&T, Inc.’s (NYSE:T) DirecTV. A multiyear deal between Starz and DirecTV has not yet been reached, which is making matters difficult regarding valuation of the proposed buyout by Lions Gate.

Last year, Lions Gate exchanged 3.4% of its common stock for 4.5% of stock in Starz owned by Malone.

In 2013, Liberty Media Corp. (NASDAQ:LMCA) completed the spin-off of its Starz Entertainment segment as a separate entity. The company has been in buyout rumors ever since, with speculations that CBS Corporation (NYSE:CBS) , Lions Gate, AMC Networks Inc. (NASDAQ:AMCX) and Twenty-First Century Fox, Inc. (NASDAQ:FOXA) were interested in adding this media and entertainment business to their portfolio.

Lions Gate is well known for undertaking strategic acquisitions and alliances to enhance its competitive position, maximize return, and build a diversified portfolio for future growth. We believe that the addition of Starz to its portfolio will not only help the company become a major player in the TV space but will also help it in recapture some of its lost ground in streaming network. Starz TV and Starz Encore channels have 24 million and 32.4 million subscribers, respectively.

Previously, Lions Gate acquired Summit Entertainment to further expand its filmed entertainment library. In addition, the company extended its domestic distribution deal with Miramax. Earlier, the company said that it expects to cross $1 billion in revenues in fiscal 2018 on the back of robust organic growth as well as acquisitions.

Lions Gate currently has a Zacks Rank #4 (Sell). The motion picture industry is highly competitive. Hence, companies like Lions Gate have to continually strive to maintain their share of box office receipts. This is because if the other players release a significant number of motion pictures, Lions Gate runs the risk of witnessing a decline in its share of box office receipts. Moreover, a limited supply of motion picture screens also makes matters difficult for the company.