You will be redirected back to your article in seconds

Lionsgate Courts Buyers as It Struggles to Compete With Industry Heavyweights

Lionsgate won’t win an Oscar for subtlety.

In earnings calls, investor conferences and television interviews, CEO Jon Feltheimer and Vice Chairman Michael Burns have made it clear that the studio behind “Mad Men” and “The Hunger Games” is willing — even eager — to sell its film and television studio.

Burns told CNBC in January that Lionsgate was a “pint-sized bite for some of these giant market cap companies” and therefore would “talk to anybody at any time” about a merger, while Feltheimer mused to Wall Street analysts in February that the media company could be “prey or predator” when it came to playing Let’s Make a Deal. Those may sound like sedate comments, but in corporate speak, the two executives seem to be chumming the waters.

“Now more than ever Lionsgate will be willing to entertain any kind of serious bid for the company, as opposed to maybe in the past when it would have dismissed such a scenario,” said Tuna Amobi, director and senior equity analyst at CFRA Research. “To be a more formidable player in this media and entertainment landscape, you need to have the scale to do so.”

Hardly a month goes by without rumors of some megadeal involving Lionsgate trickling out into the press. It’s not all idle chatter. Last year, Lionsgate came close to being acquired by Hasbro before talks broke down over pricing. The toymaker wanted to offer the company more than $40 a share, but board chairman and lead shareholder Mark Rachesky thought Lionsgate was worth more and killed the pact, insiders say.

Now, months later, shares of Lionsgate are trading at just over $28. Although the company hasn’t hired a bank to explore a sale, top executives have had conversations with potential buyers, and there’s a growing sense internally that it’s only a matter of time before they’re on the receiving end of another offer. It remains possible that the company could also acquire something as it looks to bulk up. It had, for instance, considered making a play for parts of The Weinstein Co., which is considering filing for bankruptcy.

But being the target of sales talks is a new position for Lionsgate, which over the course of its 21-year history has often been the one kicking the tires on cable networks, film libraries or movie studios, breaking out the checkbook to purchase the likes of Summit and Starz. But times are changing.

“The strategy has always been to sweep up, vacuum up whatever smaller companies they can find,” said media analyst Hal Vogel. “They have reached that point where there’s not much left to vacuum up and now they can sell themselves.” Over the years, Lionsgate has invested hundreds of millions of dollars buying up the assets of companies such as Artisan, Debmar-Mercury and Trimark and taking a stake in Roadside Attractions.

A sale makes sense in many respects. The media business is undergoing industry-wide consolidation: Telecoms are siphoning up studios, Disney has become a globe-spanning colossus and Silicon Valley is getting into the content game. Even the Murdoch clan, warily eyeing a landscape in which the once lordly 21st Century Fox was looking increasingly runty, decided to cash in. The family is in the process of selling the bulk of its television and film assets to Disney, for $52.4 billion.

And that’s not even the megadeal shaking up Hollywood. AT&T is scrambling to win approval for its $85 billion purchase of Time Warner, and CBS and Viacom are considering a merger. Two years ago, Lionsgate made its own attempt to achieve scale, shelling out $4.4 billion for Starz. But even with the cable assets that Starz offers, Lionsgate will be dwarfed by these 21st-century media and technology titans.

Barton Crockett, managing director at B. Riley FBR, said the wave of consolidation sweeping the entertainment industry means that Lionsgate is “dancing in between elephants.”

That puts it at a competitive disadvantage. In the era of big media consolidation and tech companies like Apple and Netflix pumping billions into creating original in-house movies and shows, a studio the size of Lionsgate has more to lose when a film or television program under-performs. “The game is getting tougher because of a whole bunch of new players with multiples of capital available,” Vogel said. “There’s no way that you can outdo these companies, because they have capital resources that you don’t have — and you won’t have unless you bulk up.”

Lionsgate is also feeling a time crunch to find a buyer because of increasing interest rates, Vogel said. “If you have a projection that rates are going to rise some more, you’re thinking, ‘I’d better get my deal done now while the financing is less expensive.’”

Lionsgate may find itself looking up at these new media goliaths fearfully, but its library of 16,000 film and television titles, and history of making hit movies and shows, also explain why it would be an attractive target for a company looking to join forces or to bolster its own content offerings. One scenario that intrigues Lionsgate is a union with Sony’s entertainment operations. The technology maker has long struggled to balance its device-manufacturing with its moviemaking businesses. Spinning off its Hollywood arm and combining it with Lionsgate’s assets could help the studio compete with the likes of Warner Bros. and Disney.

A Sony pact may face too many logistical hurdles, however. That would likely leave a new media company like Facebook, Apple, Amazon or Netflix as a potential landing spot. All of those firms have cash on their balance sheets and size and scale that far exceed Lionsgate’s market cap of roughly $6 billion. It’s not just that the studio is easily digestible. Making movies and television shows is a hard business, and buying Lionsgate would give these companies access to creative talent and a global distribution network. There’s also the possibility of a tie-up with a telco: A Verizon or a T-Mobile might want to counter AT&T’s purchase of Time Warner by snapping up a studio of its own and funneling self-owned shows to its millions of subscribers.

Politics may be the deciding factor.

The financial windfall companies are enjoying from the recently passed tax cuts means that capital that was being stored offshore is being repatriated. It also leaves these businesses with money to burn, a position that could heighten merger-and-acquisition activity.

Cash won’t be an issue, but fears of a government crackdown on corporate marriages could stall plans. Companies will be looking at the resolution of the antitrust lawsuit filed by the Department of Justice to block the AT&T merger with Time Warner, Crockett said. “If AT&T wins and DOJ loses, I think we’re going to see a huge scramble for consolidation,” he noted. “That’ll take away a huge cloud of concern.”

More Film

  • Santa Fe Studios Netflix

    Santa Fe Studios Competes With Other New Mexico Stages for Streaming Business

    Albuquerque Studios entered the spotlight last October when it was purchased by Netflix. While the complex is clearly the jewel in the crown of New Mexico’s production infrastructure, with eight soundstages totaling 132,000 square feet, 100,000 square feet of production offices, a large backlot and support space, it’s not the only modern studio facility in [...]

  • Jennifer Kaytin Robinson Someone Great

    'Someone Great' Director Jennifer Kaytin Robinson on Reimagining the Rom-Com

    Jennifer Kaytin Robinson, creator of the MTV series “Sweet/Vicious,” recently made her feature debut with “Someone Great,”  now streaming on Netflix. The film follows three friends as they navigate relationships and work in New York City.  Here, the writer-director opens up on reimagining the rom-com, and women changing the face of Hollywood. The three young [...]

  • Brie Larson Takes On 'Beat Saber'

    Brie Larson Takes on 'Beat Saber' With Jimmy Fallon

    “Avengers: Endgame’s” Brie Larson took to “The Tonight Show with Jimmy Fallon” to play around in virtual reality. After chatting with Fallon about the upcoming Marvel superhero flick, Larson got hooked up with an HTC Vive with the talk show hit to give “Beat Saber” a try. Fallon was first up, who played through a [...]

  • Martin Scorsese's 'Rolling Thunder' Bob Dylan

    Martin Scorsese's 'Rolling Thunder' Bob Dylan Doc Hits Netflix June 12 (EXCLUSIVE)

    You don’t need a weather man to know which way the wind blows, but Bob Dylan fans have been waiting for some kind of reliable forecast to know when “Rolling Thunder Revue: A Bob Dylan Story by Martin Scorsese” might be rolling in. Here’s that storm alert: Netflix will be releasing the documentary June 12. [...]

  • Avengers: Endgame

    Box Office: 'Avengers: Endgame' Racks Up Massive $169 Million Globally

    “Avengers: Endgame” is barreling toward a record-eviscerating weekend after opening to a mighty $169 million in its initial day of global release. That heroic haul includes a $107.5 million debut in China, an $8.4 million launch in South Korea, a $7 million bow in Australia and a $6 million day one in France. All in, [...]

  • Phyllida Lloyd’s ‘Herself’ Adds Cast, Cornerstone

    Phyllida Lloyd’s ‘Herself’ Adds Cast, Cornerstone Boards Sales (EXCLUSIVE)

    Cornerstone Films has boarded sales on “Herself,” the female-driven movie from “Mamma Mia!” and “The Iron Lady” helmer Phyllida Lloyd. Irish actor Clare Dunne, who starred in Lloyd’s all-female theater production of “Henry IV,” will play a single mother determined to build her own home with a free online plan, rebuilding her life in the [...]

  • Avengers: Endgame

    How the Avengers Became Such a Marvel in China

    “Avengers: Endgame” is on the fast track to becoming Hollywood’s most successful title ever in China, having already raked in RMB1 billion ($148 million) in just 45 hours – more than the Chinese earnings for “Wonder Woman” and “Once Upon a Deadpool” combined. It made as much in a single hour as the entire opening [...]

More From Our Brands

Access exclusive content