Lionsgate unveiled details of the long-awaited separation of its studios business and the Starz TV network and streaming division.
The company announced Friday that its studio business, comprising its TV and film production and distribution segments and a content library with 18,000-plus titles, will spin off in a merger with Screaming Eagle Acquisition Corp., a special-purpose acquisition company (SPAC). The deal is expected to close in spring 2024.
The new entity, Lionsgate Studios Corp., will let investors value the film and TV businesses as a publicly traded, standalone company. The transaction is expected to raise approximately $350 million to fund strategic initiatives, with $175 million already committed by several blue-chip investors.
The deal gives Lionsgate Studios at an enterprise value of $4.6 billion and is a big step along the path toward the full separation of Starz and the studios group. The Lionsgate parent company is expected to continue to own 87.3% of the total shares of Lionsgate Studios, while Screaming Eagle’s founders, public shareholders and investors are expected to own an aggregate of 12.7% of the combined company. The company said the deal to form Lionsgate Studios is expected to close in the spring of 2024, subject to closing conditions including regulatory approvals and approval from the shareholders and warrant holders of Screaming Eagle.
In addition to establishing Lionsgate Studios as a standalone publicly traded entity, the transaction is expected to deliver approximately $350 million of gross proceeds to Lionsgate, including $175 million in private investment in public equity (PIPE) financing already committed by leading mutual funds and other investors.
Lionsgate said net proceeds from the transaction will be used to facilitate strategic initiatives, including the Entertainment One (eOne) acquisition, which is scheduled to close Wednesday, Dec. 27. Lionsgate entered into a deal to buy TV and film producer eOne from Hasbro for $500 million in August. Ahead of the close of that deal, eOne laid off 10% of its employees; that came after Hasbro cut eOne’s workforce by 20% in June.
“This transaction creates one of the world’s largest independent pure-play content platforms with the ability to deliver significant incremental value to all of our stakeholders,” Lionsgate CEO Jon Feltheimer and vice chair Michael Burns in a statement. “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.”
According to Lionsgate, the SPAC deal with Screaming Eagle to form Lionsgate Studios increases the company’s “strategic optionality” for both Starz and the studio business. The transaction also “preserves Lionsgate’s highly attractive capital structure” and establishes the studio business as a separate, publicly traded entity with a single voting class of stock. In addition, Lionsgate Studios — as a “platform agnostic” studio — will have more latitude to license content at “competitive rates” to third parties.
Lionsgate’s management reiterated its outlook for Lionsgate Studios of revenue of $2.9 billion and adjusted operating income of $300 million-$350 million for the fiscal year ending March 31, 2024 (before any impact from the acquisition of eOne). For fiscal year 2025, Lionsgate forecasts that Lionsgate Studios will generate $370 million of adjusted operating income (excluding eOne) and that eOne will end fiscal 2025 with an annual run-rate adjusted operating in come contribution of $60 million.
Common shares of Lionsgate Studios will trade separately from Lionsgate’s Class A and Class B common shares. Lionsgate Studios does not include the Starz platform, which will continue to be wholly owned by the Lionsgate parent company. Lionsgate previously was mulling the sale or spin-off of Starz, which it acquired for $4.4 billion in 2016. But last year the company shifted gears and told investors it was looking to carve off the studios biz instead, seeing that as the financial maneuver that would create more value.
The plans to form Lionsgate Studios Corp. comes as the company is ending the year on a high note, with its films generating over $1 billion at the worldwide box office including “John Wick: Chapter 4,” Hunger Games prequel “The Ballad of Songbirds and Snakes” and “Saw X.” Lionsgate Studios also houses a talent management business.
Lionsgate is going the SPAC route in merging with Screaming Eagle, which is a publicly traded entity formed with the purpose of raising capital and merge with existing businesses. SPACs let companies raise financing and go public without having to launch a more time-consuming traditional IPO.
“We are thrilled to be part of establishing Lionsgate Studios as the only pure-play content company in the public markets, well positioned to unlock value for both existing and new shareholders,” Screaming Eagle CEO Eli Baker said in a statement. “We believe this will be seen as one of the most innovative and value-creating transactions the market has seen in some time.”
Lionsgate expects to maintain its current corporate debt structure in the transaction. Morgan Stanley is acting as financial advisor to Lionsgate while Citigroup Global Markets is advising Screaming Eagle. Citigroup and Morgan Stanley are acting as joint placement agents with respect to the common equity financing.
Pictured above: Keanu Reeves in “John Wick: Chapter 4”
