Artisan’s beefy film library will soon become Lions Gate’s cash cow, once the latter closes on a $160 million-plus acquisition of the Gotham-based company.
It remains to be seen what kind of success the Canadian buyer can milk from its pricey acquisition.
Acquired from outfits like Carolco, Hallmark and Republic, the library boasts such titles as “Basic Instinct,” “It’s a Wonderful Life,” “Terminator 2″and “Reservoir Dogs.”
“The good news is that Lions Gate gets all the revenue from Artisan without having to take on all of the costs, because of synergistic cost savings,” says David Davis, senior VP at Houlihan, Lokey, Howard & Zukin. “But it’s always challenging for an independent of a certain size to succeed.”
Basically, Lions Gate must avoid over-reaching.
An established fringe player after specialty hits such as “Monsters Ball” and “Affliction,” Lions Gate must continue to operate in the biz niches and resist any temptation to knock heads with major studios in the wide-release game.
Fortunately for Lions Gate, the DVD surge continues to supplement theatrical revenue dramatically, and its Artisan acquisition includes a solid homevid operation.
Along with the sheer mass of the companies’ combined 8,000-plus title film and TV library, the prospect of robust homevid’s fueling regular theatrical output could mean Lions Gate succeeds where past publicly traded indies such as Carolco have not.
“This deal changes the company from being an off-the-radar-screen independent to an entity that’s suddenly on the radar screen with one of the biggest film libaries in the business,” says Rob Routh of Nathexis Bleichroder in Gotham.
One of the most bullish analysts following the stock, Routh estimates Lions Gate is trading at half its true value even after a big run-up in its share price on news of the Artisan acquisition.
Routh believes a post-merger Lions Gate may become a takeover target itself, tempting content-hungry majors.
“The library really helps them a great deal,” agrees S.G. Cowen’s Lowell Singer. “But it’s going to be very important for this company to stick to their knitting.”
The Artisan library that Lions Gate is acquiring accounts for almost 7,000 of the movie catalog to be amassed through the transaction. The library was assembled partly through outright purchases and partly through the acquisition of long-term rights to classic movies.
Meanwhile, execs at Lions Gate and Artisan emphasize the prospect of substantial operating benefits from their pending merger.
“These companies were meant to be together,” Lions Gate topper Jon Feltheimer enthuses. “It’s a brilliant combination.”
Feltheimer estimates overhead savings of some $20 million from combining his company with Artisan. About two-thirds of that would come from job cuts, expected to number 100-200.
Currently, Lions Gate employs almost 250 and Artisan 200 workers. Pinkslips could fly amid both staffs.
Lions Gate, which maintains offices in Vancouver and Los Angeles, will pay $160 million in cash and assume more than $60 million in Artisan debt to acquire Artisan.
But the final payout could be as much as $5 million higher under terms regarding future film performance. Lions Gate agreed to give Artisan’s current owners a profit participation in 2004 releases “Dirty Dancing 2: Havana Nights” and “The Punisher” if the pics perform as well as hoped.
Artisan CEO Amir Malin is expected to ankle with a substantial payout. The merger, which is expected to close by year’s end, is a good deal for Artisan’s private shareholders, he says.
“Other than the job cuts that will happen — which I guess are part and parcel of our capitalist system — it’s a good result for everybody,” Malin observes.
Once the merger is completed, Lions Gate plans to release 16 titles in 2004 and a bit more in subsequent years.
“Within a year or two I’d like to be at 20,” Feltheimer says. Half of each slate will be produced inhouse and the rest acquired, he estimates.
The company’s next few releases include “Shattered Glass,” a fallen-journalist yarn starring Hayden Christensen ; “The Cooler,” a drama starring William H. Macy and Alec Baldwin ; and “Girl with a Pearl Earring,” a lit-adaptation starring Scarlett Johansson (“Lost in Translation”) and Colin Firth.