Analysts have little reaction to merger reports

The prospect of a Lionsgate-Summit merger has provoked little reaction on Wall Street in the wake of reports that the two minimajors are flirting with a merger.

Shares of Lionsgate edged down 1% on Tuesday with a decline of 9 cents to $8.44. For the year, the stock is up 30%.

Spokesmen for Lionsgate and Summit have refused to comment since reports of rekindled merger talks emerged Monday afternoon after the market closed.

Stifel Nicolaus analyst Ben Mogil issued a note to investors Tuesday asserting that Lionsgate will probably issue stock and unload TV Guide.

“We see such a deal as having limited operational synergies, largely foreign sales strength, although future Summit films could migrate to Lions Gate’s Epix deal,” Mogil said. “With only one installment left in the ‘Twilight’ series, cash flow predictability is relatively high and incorporated into valuation. The deal would likely largely involve Lionsgate stock as Summit (and Lionsgate) already carry sizable debt loads and likely accelerate a sale of TV Guide.”

Observers have noted that Lionsgate may be reluctant to issue new stock until after March, when it opens “The Hunger Games” as a possible franchise starter.

Mogil said he continues to rate Lionsgate as a “hold” with a $9 fair value estimate. He also said that such a deal would be followed by strong free cash flow. “While we will not opine on the merits until valuation is clearer, with Lionsgate stock now at a premium valuation, such a deal could well be accretive while potentially creating a strong fiscal 2013 between ‘Hunger Games’ and ‘Twilight.'”

The companies have held similar discussions in the past but those negotiations have collapsed over issues such as who would control the surviving entity. Privately held Summit announced Tuesday that “The Twilight Saga: Breaking Dawn — Part 1″ had hit $508 million in worldwide box office in its first 12 days. The final “Twilight” film will open Nov. 16.

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