Starz could turn into an “acquisition machine” after splitting from Lionsgate

John Malone of Liberty Media

Michael Kovac | Getty Images

By “free radicals” Malone was referring to affordable media companies such as AMS networkswhich is controlled by the Dolan family, or A&E Networks, co-owned by Hearst and Disneywhich lacked the global scale to compete with Disney and ComcastNBCUniversal for original programming and top talent.

While these companies may be floundering independently, the merger will give them weight on the balance sheet and leverage to increase programming fees for pay-TV providers.

Malone’s dream never came true. Since Starz, Lionsgate has not made any major acquisitions and has shrunk in market capitalization in recent years. Lionsgate’s current market valuation is just over $2 billion. In 2016, Lionsgate paid $4.4 billion for Starz. Malone is no longer a Lionsgate shareholderby selling the remaining voting shares in 2019.

But even without Malone’s influence, and even in the changing media and entertainment landscape, Starz can carry the torch of his vision.

Starz will spin

Over the past six years, streaming video became the northern star of the media world. Bringing companies together to gain an advantage in negotiations with pay-TV operators in disputes over freight charges is an anachronism because Millions of Americans are ditching cable every year. Investors see Lionsgate as the underdog in the streaming wars.

This led the management and board of Lionsgate to decide that isolating Starz is the best course of action. As part of the Starz spinoff, a minority stake is likely to be sold to determine the market value of the new public company. vivendiCanal Plus and private equity firm Apollo Global in tandem with streaming distributor Rokuboth made preliminary bids for 20% of the shares, according to people familiar with the matter.

Starz and Lionsgate ‘trade well separately’ said Jimmy Barge, chief financial officer of Lionsgate, earlier this month. “They can pursue their own initiatives, opportunities that might not otherwise exist for the combined company.”

The deal could be announced as early as August. 4, the estimated date of Lionsgate’s next income, people said. A spokesperson for Starz declined to comment.

An initial estimate based on the sale of a minority stake put Starz’s value at between $2 billion and $4 billion, say the people, who asked not to be named because the discussions are private. In other words, Starz alone can be valued at a higher market value than Starz and Lionsgate combined.

After the spin-off

The public company Starz will have to get bigger to compete with it. Netflixdisney, Warner Brazzers. Opening, Paramount Globalnbcuniversal, Apple as well as Amazon in stream wars. Even some of these companies may not be big enough on their own.

Starz has 24.5 million subscribers worldwide. Combined with premium cable network Starz, which competes with HBO and Showtime, it has 35.8 million subscribers worldwide. By comparison, Netflix has 222 million subscribers worldwide.

Starz tends to focus on female and black audiences and has had some success with shows like Power, Outlander and Gaslight, a recently released Watergate series based on the first season of the Slow Burn podcast starring Sean Penn. roles. and Julia Roberts.

“Starz appears to have strong content but is struggling to grab attention,” JPMorgan analyst Philip Cusick wrote in a note to clients. “This is in line with our thesis that streaming is a business of scale and we believe that Starz content is better in the hands of another distributor.”

Lionsgate has been trying to sell Starz for years. In 2019, he was pretty close to making a deal with CBS. This sale never crossed the finish line because vice chairman and majority owner Shari Redstone instead chose to promote Viacom alongside CBS. While former CBS CEO Joseph Ianniello was interested in acquiring Starz, Bob Bakish, CEO of the combined ViacomCBS, is now Paramount Globaldidn’t share his vision, the two people said.

Every major media company ultimately decided not to acquire Starz. Buying a small-scale streaming service tied to the traditional pay-TV model is no easy task for Wall Street. Investors don’t want big media companies to spend their money on deals that don’t contribute to future growth.

How Starz Grows

Starz CEO Jeffrey Hirsch

Source: Stars

This gives Starz another path to rapid growth: acquisitions or mergers with other companies. Two possible targets, once again, AMS networks and A&E networks. The market value of AMC Networks is $1.3 billion. An AMC spokesperson declined to comment on the potential merger. An A&E spokesperson did not immediately respond to the comment.

Investors may be far more optimistic about a Starz-AMC Networks merger than if the larger company gets rid of smaller competitors. Accumulating a series of deals won’t make Starz a big player overnight. But it could give her the opportunity to acquire shares in other major media companies. Over time, Starz could very well become a media company of sufficient size to pose a threat to competitors. Or at least not in hindsight.

Starz CEO Jeff Hirsch hinted at such a possibility in a 2020 CNBC interview..

“You will see these six big players, but over time they will also start to look at their portfolio of assets and say, ‘OK, is this a good fit?’ Hirsch said. “You will start to see assets fall out of these big six, which then form the new four or five that will come up. Do you still have SonyMGM, Lionsgate, AMC. John Malone spoke about joining some of these smaller points together.” (MGM has since been acquired by Amazon.)

Perhaps AMC Networks and A&E will pull out of the sale. But they, too, turn out to be legacy relics—owners of declining-value cable networks. Starz may act as a kind of “horizontal acquisition machine” in the coming years in order to remain viable.

If you’ve heard this phrase before, it’s because someone described their intentions to acquire a stake in cable company Charter Communications back in 2013.

This man was Liberty Media Chairman John Malone.

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