×
You will be redirected back to your article in seconds

Summit deal drives Lionsgate stock surge

Companies release further merger details

Wall Streeters clapped Lionsgate on the back Tuesday, viewing its acquisition of Summit as a low-risk way to inject some fresh cash into the company.

The shares hit a 52-week high early on, opening more than 5% higher at $9.04 on the first day of trading since a deal was announced to merge the growing indie studio with the owner of the “Twilight” franchise. They stock ended the session up 3.95% at $8.94, still well outpacing the overall market.

Evercore analyst Alan Gould raised his rating on the company’s stock to “overweight” from “equal weight” – basically telling investors to add some more to their portfolios.

“The key drivers to LGF shares will be the performance of ‘The Hunger Games’ and ‘Twilight 5,'” with additional upside potential from ‘Anger Management’ and a potential ‘Twilight 6.'” We do not see any near-term negative catalysts and expect the stock to trade up into the March 23rd opening of ‘The Hunger Games,'” he said.

“We view the deal as positive even assuming that the non-‘Twilight’ Summit films generate negative returns. The strong cash flow from ‘Twilight’ and some merger synergies make the deal positive. We await some more financial disclosure regarding Summit to review our rating but find the purchase price/financing as positive,” agreed Ben Mogil of Sifel Nicolaus in a note Tuesday morning.

Lionsgate said in deal-related SEC filings that it may release Summit financials later on.

Mogil estimated annual cost savings of around $9 million in SG&A (the cost of doing business) and $20 million in distribution and marketing. He said the deal provides Lionsgate a stronger international sales force, Summit’s forte.

Gould put the actual value of the deal at $660 million, including $500 million in Summit debt. “We value ‘Twilight 4’ and ‘Twilight 5’ at $575 million, so LGF paid $85 million for 10 additional films in production, the library and the potential for more ‘Twilight’ films,” he said — referring to “The Twilight Saga: Breaking Dawn — Part 1” released last year and “The Twilight Saga: Breaking Dawn — Part 2,” due out in November.

He estimated the $500 million note would be paid down in a little over two years.

Caris & Co., one naysayer, thought Summit’s debt was too high.

Gould valued “The Hunger Games” franchise at $215 million-$430 million or more than $2 per share but said the number could prove to be conservative. It’s part of a trilogy, and book sales have been gaining momentum — now ranking at the top of Amazon’s bestsellers list.

He noted that “Anger Management,” starring Charlie Sheen, debuts on FX in June. The show has a strong pedigree, with Bruce Helford as showrunner and Joe Roth producing, and has enjoyed strong international sales to date.

And he said pay TV channel Epix should generate $80 million of operating income, and it still has not signed up three of the four largest distributors. “If Epix can license two of those three distributors, we believe profits could jump to at least $100 million-$125 million,” Gould said.

In the SEC filings Tuesday, Lionsgate noted that Summit’s owners could pocket up to $7.5 million above and beyond the indie studio’s purchase price if the last two “Twilight” movies “exceed prescribed thresholds.”

The overall deal, which Lionsgate said was worth $412 million, included $343.5 million in cash, $49 million in stock (about 5.8 million shares) and an additional $20 million in either cash and/or stock payable within 60 days of last Friday’s deal closing.

The company will also partly fund the transaction by issuing up to $45 million in 4% convertible senior notes subordinated to Kornitzer Capital Management. Kornitzer principal John Kornitzer was a key ally helping Lionsgate outmaneuver corporate raider Carl Icahn in a battle over control for the company last year.

The notes come due in 2017 and may be converted into common shares of Lionsgate at any time prior to maturity or repurchase by the company, the SEC filing said. The initial conversion price of the notes will be $10.50. Interest will be payable on Jan. 15 and July 15 of each year starting this July.

A credit agreement though JPMorgan Chase provides the $500 million, 4 1/2 year loan to Summit repayable in quarterly installments of $13.75 million, with the balance due in September 2016. Lionsgate has said it expects to be able to pay it down well before maturity given Summit’s anticipated cash flow.

More Film

  • FICG Names Estrella Araiza As New

    Estrella Araiza To Head Up Guadalajara Intl Film Festival

    The Guadalajara Intl. Film Festival (FICG) has announced that Estrella Araiza, until now the festival’s head of industry and markets and director of the Guadalajara IntL. Film Festival in Los Angeles, has been promoted to the position of general director of the prominent Mexican festival. She replaces Ivan Trujillo, appointed director of TV UNAM. Araiza [...]

  • 'St. Bernard Syndicate' Review: A Quietly

    Film Review: 'St. Bernard Syndicate'

    John C. Reilly and Steve Coogan may have received major award nominations this season for their fine work in “Stan & Ollie,” but there’s arguably a superior Laurel & Hardy tribute act to be found in the droll Danish comedy “St. Bernard Syndicate.” As a pair of bumbling losers who turn an already dubious business [...]

  • With PGA win, 'Green Book' is

    Oscars: With PGA Victory, 'Green Book' Becomes Best Picture Frontrunner

    Save for a pair of recent back-to-back discrepancies in “The Big Short” and “La La Land,” the Producers Guild’s Darryl F. Zanuck Award for Theatrical Motion Pictures has been a fairly reliable barometer for the annual Oscar season outcome. At least, ever since both the PGA and film Academy expanded their top categories, sharing the [...]

  • Peter Farrelly30th Annual Producers Guild Awards,

    PGA Awards: 'Green Book' Wins Top Feature Film Award

    “Green Book” has won the Producers Guild’s Darryl F. Zanuck Award as the top feature film of 2018. The 1960s drama-comedy topped “BlacKkKlansman,” “Black Panther” “Bohemian Rhapsody,” “Crazy Rich Asians,” “The Favourite,”  “A Quiet Place,” “Roma,” “A Star Is Born” and “Vice. “When you make ‘Dumb and Dumber’ you never expect to get an award,” [...]

  • Netflix HQ LA

    Andy Gruenberg, Veteran Film Executive, Dies at 68

    Veteran film executive Andy Gruenberg, who most recently oversaw theatrical distribution at Netflix, died suddenly on Friday. He was 68. Gruenberg worked on classic films like “Ghostbusters,” “Karate Kid” and “Silverado” while at Columbia Pictures in the 80s and 90s. He then moved to MGM where he served as exec VP of distribution. There he [...]

  • Fyre Festival Caterer Receives Thousands in

    Unpaid Fyre Festival Caterer Raises Thousands in Donations on GoFundMe

    As two Fyre Festival documentaries hit the airwaves, a couple who say their credit was ruined due to the Fyre Festival’s lack of payment for their services have raised $54,381 at time of publication on GoFundMe. Elvis and Maryann Rolle wrote on their page that they catered “no less than 1000 meals per day” in [...]

  • DF-10956_R – Gwilym Lee (Brian May) and

    'Bohemian Rhapsody' Producer Confirms Bryan Singer's Reason for Leaving, Says 'No One' Was Attached to Play Mercury

    “Bohemian Rhapsody” producer Graham King provided insight into some of the events surrounding the Golden Globe-winning film Saturday at the Producers Guild Awards Nominees Breakfast, including director Bryan Singer’s departure from the film partway through production. “It’s an unfortunate situation, with like 16, 17 days to go and Bryan Singer just had some issues, his [...]

More From Our Brands

Access exclusive content