Lionsgate Says It’s Exploring Options For Starz, Putting The Division In Play; “Exploring Alternate Paths Is Prudent” – Update

UPDATE: Lionsgate says it’s exploring options for Starz in new that is sure to heat up the M&A rumor mill. The company made the announcement in an SEC filing as it reported quarterly earnings. Specifically, it said it authorized it’s board of directors to “explore potential capital market alternatives for Starz.”

Executive on a conference call said multiples on recent media transactions — meaning high prices — make it a good time to look at a deal of its own. They indicated that they don’t think Lionsgate stock price reflects the value of its assets and a sale would be a way to unlock shareholders value.

“While we continue to realize substantial synergies from being Lionsgate and Starz together, we also see the opportunity to potentially unlock significant shareholder value under a scenario where investors have the ability to value our studio assets and Starz separately,” said vice chair Michael Burns. “Recent transaction multiples in the media space give us confidence that exploring alternate paths is prudent.”

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“Additionally, we believe that a number of the structures we’re considering would allow Lionsgate and Starz to preserve many of the operational benefits we’re currently achieving within a single corporate structure,” he said.

CEO Jon Feltheimer said he thinks Lionsgate is getting “negative value” for its Starz assets.

Execs stressed that it’s an open process and wouldn’t specify if the company is leaning towards a sale, a spinoff or another kind of transaction.

Lionsgate shares are trading at around $14, up from a 52-week low a year ago of close to $7 but off a year high of over $21.42 in June.

MORE coming…

Previously: Lionsgate said global streaming subscribers jumped 40% year-over-year in the September quarter to 18 million. Starzplay International subs nearly doubled to 7.5 million.

Revenue of $887 million, up from $745 the year before, was shy of Wall Street forecasts. Adjusted EPS of 15 cents a share was in line. The company swung to a net profit of $3.1 million in what as its fiscal second quarter from a loss of $21.7 million.

Lionsgate CEO Jon Feltheimer noted strong content generation across the company’s business, noting the strong premieres of three new series in the quarter — including Power Book III: Raising Kannan. The television group launched six new series and renewed six current shows. And motion pictures launched production of nine new films. “Importantly, we accomplished this and continued to ramp our content spend while also continuing to generate positive adjusted free cash flow and solid adjusted OIBDA” – operating income before depreciation and amortization. That metric beat consensus forecasts.

The company said total media networks global subscribers reached 30 million. Media Networks segment revenue of $384.7 million was flat from the year earlier as profit dipped to $5.5 million, driven by higher cadence of programming and content spend and marketing costs.

Motion Picture segment revenue was up 28% to $331 million. Profit rose 22% to $101 million on higher home entertainment sales and profit contributions from acquired libraries.

Television Production revenue of $336 million was up 70% compared to the prior year quarter and segment profit surged by 188% to $28.5 million, reflecting the deliveries of a number of new series.

Revenue from Lionsgate’s 17,000-title film and television library was $784 million for the trailing 12 months.  Lionsgate completed the acquisition of the 200-title Spyglass Media Group library in the quarter.

Execs will host a conference call at 5 pm ET to discuss the numbers.

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