Lionsgate‘s long-gestating plan to split the studio with Starz is finally a go as the company announced today that Studios — the TV studio, motion picture group and film and television libraries — will merge with Screaming Eagle Acquisition Corp., a SPAC (special purpose acquisition company) led by Eli Baker.
The transaction sets a $4.6-billion enterprise value on Lionsgate Studios. Lionsgate will clear $350 million in proceeds from the deal to use for paying down debt and strategic initiatives — including those related to eOne.
Mainly, the separation, expected to close in the spring, will create in Lionsgate Studios one of the biggest global pure-play publicly-traded content companies — and a potentially attractive acquisition target set to add more fuel to media M&A chatter. Studios’ portfolio includes franchise properties The Hunger Games, John Wick, The Twilight Saga and Ghosts; a robust film and television production and distribution business; a leading talent management and production company; and a large film and television library that throws off significant cash.
Lionsgate has planned for nearly two years to separate the studio and Starz with CEO Jon Feltheimer in August anticipated the news coming in the first quarter of 2024. Market conditions were a factor, and the idea in any case was to wait until the company closed its acquisition of eOne from Hasbro, which will be announced next week.
Conditions are pretty good now. Just off The Hunger Games: The Ballad of Songbirds & Snakes, Lionsgates had a strong year at the box office, the stock’s up. Management believes that Lionsgate’s standalone studio business can garner “a valuation more reflective of the studio business’s outlook than what Lionsgate’s current consolidated valuation reflects.”
The SPAC solution is interesting. These are empty vessels that go public, raise cash and have two years to complete a merger with an actual company. SPACS trend in and out of vogue on Wall Street, but Screaming Eagle has distinguished pedigree. Its chaired by Harry Sloan, a longtime media executive and current Lionsgate board member, who has stood up some of the earliest and most successful SPACs in media and entertainment in partnership with Jeff Sagansky and others. Saganksy is a Screaming Eagle director.
As a result of the transaction, 87.3% of the total shares of Lionsgate Studios are expected to continue to be held by parent Lionsgate, while Screaming Eagle public shareholders and founders and common equity financing investors are expected to own an aggregate of approximately 12.7% of the combined company.
Lionsgate Studios does not include Starz, which is the point, and the platform will continue to be wholly owned by parent Lionsgate. Lionsgate believes the split improves “strategic optionality” for Starz as well as for Lionsgate Studios.
Common shares of Lionsgate Studios will trade separately from Lionsgate’s Class A (LGF.A) and Class B (LGF.B) common shares as a single class of stock under a different stock symbol not announced today At some point there will be a distribution of shares of the new studio stock to Lionsgate shareholders.
The deal is subject to some closing conditions including regulatory approvals and approval from the shareholders and public warrant holders of Screaming Eagle.
“This transaction creates one of the world’s largest publicly-traded pure play content platforms with the ability to deliver significant incremental value to all of our stakeholders,” said said Feltheimer and Lionsgate Vice Chair Michael Burns.
“Coupled with the acquisition of the eOne platform scheduled to close next week, the expansion of our partnership with 3 Arts and the strong performance of our content slates, we’ve put together all of the pieces for a thriving standalone content company with a strong financial growth trajectory.”
“We are thrilled to be part of establishing Lionsgate Studios as one of the only pure play content companies in the public markets, which is well positioned to unlock value for both existing and new shareholders,” said Screaming Eagle CEO Eli Baker. “We believe this will be seen as one of the most innovative and value creating transactions the market has seen in some time.”
Lionsgate’s management said it believes the transaction with Screaming Eagle provides a more favorable structure compared to potential alternatives for a variety of reasons including “greater price discovery and confidence,” and lower share dilution than traditional SPAC transactions.
