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Lionsgate, Starz Insiders Throw Ice on Merger Report

It’s starting to feel inevitable that Lionsgate and the Starz premium cable channels will merge operations, brought together by the command bond of investor John Malone.

But how quickly the companies will tie the knot is still the subject of much speculation. The Los Angeles Times reported Monday that the two entities were in advanced merger talks. That was downplayed by insiders at both companies and a senior Lionsgate investor, all of whom acknowledge that the concept of merging has been discussed in abstract but disputed that talks to unite the companies are under way at this time.

Wall Street took note of the report, however, and sent Lionsgate shares soaring 7.2% in after-hours trading, hitting $42. Starz shares shot up 10% in after-hours trading to $43.

Malone personally owns a large stake in Starz, and earlier this year he acquired a nearly 3.5% stake in Lionsgate and a seat on the studio’s board. But a merger of the two companies still requires the approval of two separate boards of directors. And to that and, valuation has been a big hurdle. As of Monday, Starz had a market cap of $4 billion while Lionsgate was valued at $5.8 billion.

The Times reported that in the merger scenario that has been discussed, Lionsgate CEO Jon Feltheimer would run the combined company.

Starz has been the subject of non-stop sale speculation since it was spun off from Malone’s Liberty Media as a stand-alone entity in late 2012. Many financial observers believe that a premium pricetag is already baked in to Starz’s stock price.

The company has made strides in the past year under CEO Chris Albrecht with original programming including buzzy dramas “Outlander” and “Power.” But like all cable programmers, Starz’s cluster of 17 Starz and Encore-branded premium channels are facing some turbulence in the future as business models shift and digital distribution up-ends the traditional bundle that has long benefitted programmers with multiple channels. In a skinny-bundle environment, Starz may not be able to maintain as many channels as it offers now, which is sure to be factored into valuation wrangling, whether with Lionsgate or another suitor.

There’s also been on-again, off-again rumors about a possible Starz-AMC Networks merger. Malone has hinted at ambitions of rolling up a number of smaller cable programmers to bulk up on the content side.

Between his personal holdings and those that he controls through Liberty Media and Liberty Global, Malone has interests in everything from Discovery Communications to London-based production conglomerate All3Media.

Sources close to the situation note also that Malone and his team at present are most focused on completing the $56 billion merger of Charter Communications and Time Warner Cable, a distribution play that could provide a big platform for content options down the road as it will become the nation’s second-largest cable operator behind Comcast.

Reps for Lionsgate and Starz declined to comment on the Times’ report.

(Pictured: John Malone)

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