Expect tongues to wag on Wall Street given that Malone has a reputation for being an expert consolidator and the two companies have previously been viewed as acquisition targets for each other. A November report from the New York Post said that Starz was looking to sell itself for $5 billion and mentioned Lionsgate as a potential suitor. The companies have complimentary cable assets — Lionsgate is a part owner in pay TV channel Epix.
As part of the agreement, Lionsgate will exchange 3.43% common stock for a portion of Series A and Series B of Starz’s common stock. The stock was held by Malone and his affiliates and represents 4.51% of Starz common stock and 14.50% of the total voting power of Starz common stock.
Malone will remain Starz’s largest voting shareholder.
“Lionsgate has emerged as a leader in developing global content, and this transaction creates the potential for a number of strategic opportunities around the world with them,” said Malone in a statement. “I’m delighted to add my voice to the Board of Directors of one of the most exciting content companies in the industry.”
“John has been a pioneer in content distribution to the next generation consumer, and we’re delighted to add an investor of his caliber, experience and vision to our Board of Directors,” said Lionsgate Chief Executive Officer Jon Feltheimer and Vice Chairman Michael Burns in a joint statement. “We see tremendous value in Starz as well as the potential to explore a broad range of strategic initiatives in the future.”
Lionsgate has had a business relationship with Starz in the past. The studio licenses more than 500 of its movies to Starz’s premium channels as part of a multi-year pact it signed in 2012.
Cable consolidation has been a driving force for Malone. The media investor has snapped up stakes in the likes of Charter Communications and ITV through his companies Liberty Global and Liberty Media, and engaged in a failed bid last year for Time Warner Cable.
Lionsgate’s future has been the subject of much speculation in investing circles. The studio behind “The Hunger Games” and “Divergent” was also reportedly eyed by Alibaba. The Chinese e-commerce giant was interested in buying a stake in the studio.
Shares of Lionsgate shot up 7.37% to $31.88 and Starz shares increased 3.41% to $31.75 after the agreement was announced.