Does Hollywood now have a seventh major in Lionsgate-Summit?
In the wake of Lionsgate’s $412.5 million acquisition of its rival, that’s the initial hope on the part of those involved — that the whole is greater than the sum of the parts. “It’s really a situation where one plus one equals more than two,” vice chairman Michael Burns asserted a few minutes after the deal was announced Friday afternoon.
The idea of another major — operating on the same level as Fox or Universal — is appealing for creatives in Hollywood since there will one less buyer out there with the absorption of Summit into Lionsgate.
For now, Summit will operate as a separate subsidiary within Lionsgate while the management structure’s sorted out — though Lionsgate co-chairman and CEO Jon Feltheimer has promised to disclose specifics within a week or two such as what roles Summit toppers Rob Friedman and Patrick Wachsberger will fill.
Lionsgate has a blockbuster coming in November in “The Twilight Saga: Breaking Dawn — Part 2” — as close to a sure thing as there is in Hollywood — to go along with the first of four “Hunger Games” films opening on March 23.
“We are uniting two powerful entertainment brands, bringing together two world-class feature film franchises to establish a commanding position in the young adult market, strengthening our global distribution infrastructure and creating a scalable platform that will result in significant and accretive financial benefits to Lionsgate shareholders,” Burns and Feltheimer said in a statement Friday.
Beyond the franchises, however, exactly what will happen with the 17 other films — mostly low-to-mid budget efforts — on the combined slate for 2012 is a bit murky. The first two are set to open against each other on Jan. 27 when action comedy “One for the Money,” starring Katherine Heigl, goes up against Summit’s action thriller “Man on a Ledge,” starring Sam Worthington.
Lionsgate also has a similar situation on Feb. 24, when it opens comedy-romancer “Tyler Perry’s Good Deeds” and Summit’s suspenser “Gone,” starring Amanda Seyfried.
It would not be a complete surprise if one or more of those four titles is shifted to another release date. The next Summit film, action-suspenser “The Cold Light of Day,” starring Bruce Willis, opens April 6 — a week before Lionsgate’s horror-comedy “The Cabin in the Woods.”
Further along the way, the Lionsgate slate offers promise from “What to Expect When You’re Expecting,” “The Expendables 2” and “The Last Stand,” marking Arnold Schwarzenegger’s return to the bigscreen early next year; Summit could see hits in vampire romancer “Warm Bodies,” sci-fier “Ender’s Game,” magician suspenser “Now You See Me” or “Red 2,” which has been slotted for August 2013 but still has no director.
The nagging suspicion among the town’s cynics is that Summit’s stunning success with “Twilight,” with the final worldwide gross probably near $4 billion, will not be replicated — despite the not inconsiderable strengths of the merged entity. Optimists can point to 2010, when Summit and Lionsgate combined for more than $1 billion in domestic gross, outpacing Universal; but pessimists can note that with Lionsgate stumbling last year, the two mini-majors combined for only about $600 million.
Still, consolidation of the two may have been inevitable. The companies, most of whose operations are located within a few blocks of each other, had been talking merger at various points since around the time in 2008 when the first “Twilight” film opened. Those talks gained momentum last year for three key reasons:
•Summit became more attractive thanks to the success of the “Twilight” franchise.
• Competition from the six majors became tougher as they accelerated their focus on mega-budget franchises aimed at succeeding on a worldwide basis.
• Lionsgate removed a major distraction by settling its long dispute with Carl Icahn.
The deal, announced Friday, arrived with a notable lack of fireworks.
“There was never really much drama in this negotiation,” noted James Berk, CEO of Summit investor Participant Media. “It really unfolded in a pretty orderly fashion. I think that’s kind of unique.”
When the deal announcement came a few minutes after the close of markets Friday afternoon, the one real surprise to many was that the transaction wasn’t a tentative agreement but a complex completed transaction — financed as a leveraged buyout that cashes out Summit’s investors with about $342.5 million and a stake of 4%-5% in the amplified Lionsgate.
Early last year, Summit’s ownership — which includes top Summit execs, Nala Investments and Suhail Rizvi’s Rizvi Traverse Management — had been considering a move into TV production as a way to diversify operations from the core businesses of film production and foreign sales in order to take advantage of the success of the “Twilight” franchise. Friedman and Wachsberger told Variety last February that the first moves would take place in the following months.
“We were looking into the funds it would have taken to expand,” Berk noted. “At the same time, Summit became very attractive as a potential acquisition, so these conversations started with multiple parties.”
Besides monetizing the investment of the Summit owners, Berk said, the deal offers the benefits of allowing the combined entity to take better advantage of the “Twilight” and “Hunger Games” franchises, long-term stability, monetization of the Summit library and the firepower to compete effectively with the big six studios.
“This really is the right deal at the right time,” he added.
Berk also expects the deal to benefit Participant, which is halfway through a five-year output deal with Summit and looking to ramp up feature production and move into TV production. The 8-year-old company — focused on the environment, health care, human rights, institutional responsibility, peace and tolerance — has backed “Syriana,” “An Inconvenient Truth,” “Charlie Wilson’s War,” “Contagion” and “The Help.”
Berk admitted he’s cognizant that there’s now one less buyer in Hollywood.
“On the one hand, it is frustrating to lose a player in the feature film market,” Berk told Variety. “But if the company executes, there’s plenty of capacity for its product.”
The Lionsgate-Summit merger discussions picked up in the wake of Lionsgate’s Aug. 29 settlement with Icahn under which the billionaire agreed to sell off his stake — thus ending his three-year quest for control of the company, highlighted by bitter blasts at Feltheimer and Burns.
Summit also received a serious offer in the late fall from Miramax owner Colony Capital. But with Miramax making only small moves to get back into production, the Lionsgate bid may have been more attractive partly due to its well-established TV operation.
Lionsgate’s smallscreen operation is best known for AMC’s “Mad Men,” Showtime’s “Weeds” and “Nurse Jackie,” Starz’s “Boss” and the upcoming Charlie Sheen sitcom on FX, “Anger Management.” The Debmar-Mercury syndication operation includes “Tyler Perry’s House of Payne” and “The Wendy Williams Show.” It’s also moved aggressively into digital distribution. And Feltheimer’s already indicated he’d be open to leveraging the “Twilight” franchise into some kind of TV programming.
Friedman and Wachsberger met with Summit staff after the announcement on Friday afternoon to brief them on the deal and emphasize that the employees should focus on ongoing business. “We told them that we’re going to continue to go about their business because we have a lot of films coming,” Friedman told Variety
. “We are going to continue to operate Summit day to day and work with Lionsgate on a seamless transition. We are not taking our foot off the pedal.”
Summit has about 150 employees, Lionsgate about 500. The announcement didn’t address the issue of whether there will be layoffs, but Feltheimer said, “There’s no question that there will be some consolidation, but for many employees, this will be a tremendous opportunity.”
Feltheimer and Burns have a notable track record in absorbing companies — Trimark in 2000, Artisan in 2003, Redbus in 2005, Debmar-Mercury in 2006, Mandate in 2007 and TV Guide Network in 2009 as well as a stake in Roadside Attractions in 2007.
Mandate isn’t Summit, clearly, but under Lionsgate, it’s maintained operations as an independent brand for the past four years and served as a production company on “50/50,” “A Very Harold and Kumar Christmas” and “Young Adult,” released by Summit, Warner Bros. and Paramount, respectively. Upcoming Mandate titles include “A Forest of Mirrors,” “Great Hope Springs” and “Seeking a Friend for the End of the World,” with distribution handled by Disney, Sony and Focus, respectively.
The merger will significantly beef up Lionsgate’s foreign sales operations. Wachsberger said he expects Summit’s foreign sales division to be operating as usual at the upcoming Berlin and Cannes film markets; international distribs with output deals began receiving calls Friday that they would continue to receive pics via those agreements through 2012.
Since 2007, Summit co-chairs Friedman and Wachsberger have transformed Summit from a foreign sales company into a full-service production and distribution studio on the back of its successful gamble on film adaptations of Stephenie Meyer’s bestselling series of vampire-werewolf novels.
In April 2007, Summit arranged a $1 billion financing deal — a transaction that would not have been possible a few months later as the financial markets began melting down. Last March, Summit closed a $750 million financing deal — a $550 million term loan and a $200 million revolving line of credit — and paid a cash distribution to its largest investors, including Friedman, Wachsberger, Participant Media, Nala Investments and private equity fund Rizvi Traverse Management.
Lionsgate’s been busy in recent months laying the groundwork for “Hunger Games” and the rest of the upcoming slate, including bringing on Alcon as a co-financier on “What to Expect When You’re Expecting.” It hasn’t done a wide release since September; it announced in November that it had lost $24.6 million in its second quarter ended Sept. 30 due partly to disappointing perfs from “Conan the Barbarian,” “Warrior” and “Abduction.”
Lionsgate’s balance sheet had $590 million in debt as of Sept. 30. It has about 13,000 titles in its film and TV library.