In Current M&A Moment, Lionsgate A Prime Target As CEO Jon Feltheimer Downplays “Concept Of Scale”

Lionsgate CEO Jon Feltheimer said Thursday that two media merger deals in as many weeks are “resounding affirmation of the value of content, IP and brands,” but that the company wants to keep its head down and “not get distracted by this concept of scale.”

“Obviously we will talk to everyone, we listen to everything,” he said on a conference call following strong quarterly earnings — even as Lionsgate is considered the most likely to be scooped up next if, or, more likely, as, a wave of consolidation in the sector continues.

The company’s shares reflect that, as well as solid growth in Starz subscribers and across its portfolio. The stock’s risen steadily since AT&T announced plans to shed WarnerMedia in a $43 billion deal with Discovery and through yesterday’s news that Amazon will acquire MGM for $8.45 billion. Lionsgate shares closed today up 1.3% at $18.66 and gained another 2% or so in late trading after the earnings.

“Mergers come in waves. There have been constant waves. The waves are gapped father and father apart, but they are bigger and bigger because there are fewer and fewer companies,” said Neil Begley, SVP of Moody’s Investor Services, who has been following the sector since the 1980s. “Lionsgate looks a lot like MGM. It’s got one of the leading libraries out there” with franchises including Saw, Hunger Games and John Wick.

Amazon CEO Jeff Bezos said his deal was a simple function of MGM’s “vast, deep catalog of much beloved intellectual property.” Amazon will use the content to power Amazon Prime Video, which helps power the engine Amazon Prime.

In AT&T’s case, the telco, which needs to spend tens of billions of dollars on spectrum and rolling out 5G, balked at the content investment required to make HBO Max competitive.

Together, the deals reflect a shift in the competitive landscape, in this case a pivot to streaming. Similar shifts have resulted in waves of deals from when Sony bought Columbia Pictures in 1989 and Matsushita bought MCA/Universal in 1991. Both were hardware companies looking to get into software. One deal lasted, one didn’t.

Today, “Everyone has realized they have to get bigger in streaming, so they need content,” said Alan Gould of Loop Capital. And they need more content, even as less and less is available as studios keep it or claw it back as soon as possible to feed sister streamers.

NBCUniversal parent Comcast is also said to have courted MGM but backed out when the price levitated from around $6 billion to over $8 billion. It’s ironic because Comcast has history with MGM. It acquired the studio along with Sony and several private equity firms in 2004 from then-owners Kirk Kerkorian, producer Frank Mancuso and Australia’s Seven Network. MGM, which had half a dozen owners before that, was overleveraged and filed for bankruptcy in 2010.

“Comcast could have stepped up, tried to turn it around,” Begley said. In fairness, though Netflix had started, streaming was not a big thing then. Traditional media wouldn’t jump on for another decade.

The high price Amazon paid, as everyone has pointed out, is because it has a different calculus called Prime. (Apple has also kicked some studio tires on behalf of Apple TV+.)

Gould called Lionsgate so attractive to potential buyers because it’s a “free radical” and a digestible size. He estimates it would be worth at least $8 billion, or $31 a share. It has a 17,000-title library, Starz, and is a leading independent producer.

In a note earlier this week, he valued Starz at $5.9 billion and the legacy film and TV businesses at $5.1 billion (the $8 billion comes after subtracting overhead and debt).

Nor is Lionsgate is burdened with basic cable networks, which some see as a liability for another free radical, AMC Networks.

Going bigger, Loop puts an enterprise value on ViacomCBS of $42 billion, making it harder to swallow. It could be a buyer or merge with another like NBCUniversal. Wall Streeters have noted considerable antitrust issues in that case that would have to be resolved since the combined entity would own two broadcast networks.

What are the relatively few companies in the mix saying?

Sony Corp. has been pressured on and off over the years to sell its studio. CEO Yoshida Kenichrio told the Financial Times this week that it will not.

Comcast chief financial officer Mike Cavanaugh told investors at a virtual media conference Wednesday, as Amazon-MGM was going down, that “It’s our job to consider anything that could be possible to be smart and add value [but] we like the assets we have.”

“Obviously people talk about scale in the media business these days … but I think what’s underestimated is execution,” he said, “and we feel very good about that.”

Disney CEO Bob Chapek and ViacomCBS CFO Naveen Chopra told the same conference (an event put on by J.P. Morgan) on Monday that they are focused on growing their respective businesses, happy with their competitive positions and don’t need deals.

Disney smartly bulked up already with Pixar, Lucasfilm and Marvel and topped that off by buying the entertainment assets of Fox. Disney+ is also way ahead among the new crop of streamers.

Begley of Moody’s noted that deals with ViacomCBS, Comcast and AMC Networks would all have to be “friendly” because they’re controlled companies (by, respectively, Redstones, Roberts and Dolans).

Lionsgate does not have a controlling shareholder. Nor will the new combined WarnerMedia-Discovery when that is set to close mid-next year.

FOUR DECADES OF MEDIA DEALS

1980s

1986 – Capital Cities buys ABC

1989 – Sony buys Columbia Pictures

1990s

1990 – Warner Communications and Time merge

1991 – Matsushita buys Universal parent MCA

1994 – Viacom buys Paramount

1994 – Viacom buys Blockbuster

1995 – Seagram buys Universal/MCA from Matsushita

1995  – Westinghouse buys CBS

1996 – Disney buys Capital Cities/ABC

1996 – Time Warner and Turner Broadcasting merge

1997 – Westinghouse sells its power and light bulb businesses and changes name to CBS

1998- AT&T buys John Malone’s TCI cable

1999 – Viacom buys CBS

2000s

2000 – AOL buys Time Warner

2001 – Vivendi buys Seagram

2001 – Vivendi buys Barry Diller’s USA Networks

2001 – Comcast buys AT&T Broadband

2003 – Vivendi creates NBCUniversal by combining the studio with GE’s TV biz led by NBC

2004 – Comcast tries unsuccessfully to buy Disney

2011 – Comcast buys 51% of NBCUniversal

2013 – Comcast buys rest of NBCUniversal

2014 – AT&T acquires DirecTV

2015 – Charter Acquires Time Warner Cable

2017 – Disney acquires Fox (outbids Comcast, which buys Sky)

2018 – AT&T acquires Time Warner

2021 – AT&T sells part of DirecTV

2021- AT&T sells WarnerMedia

2021 – Amazon buys MGM

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