Lions Gate Buys Starz for $4.4 Billion for Premium Cable Outlet

Creates a More Diverse Media Company

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Lions Gate Entertainment, the studio that produced "The Hunger Games" and "Mad Men," agreed to buy billionaire John Malone's Starz in a deal valued at $4.4 billion, gaining premium cable TV channels to operate alongside its film and television production businesses.

Starz Series A stock holders will get $18 in cash and 0.6784 a share of Lions Gate non-voting stock. The offer is valued at $32.73 a share to Starz shareholders, an 18% premium to Starz's 20-trading day average price as of June 28, according to a statement Thursday. Holders of each share of Starz Series B stock will receive $7.26 in cash and 0.6321 of a share of Lions Gate voting stock and 0.6321 of a share of Lions Gate non-voting stock.

The companies have been the subject of merger speculation since February 2015, when they exchanged minority stakes and Malone joined the Lions Gate board. Two other Malone companies, Liberty Global and Discovery Communications, later acquired stock in Lions Gate. The cable mogul, worth $8 billion according to the Bloomberg Billionaires Index, has spoken publicly about rolling up media companies to gain scale.

Shares of both companies rose in extended trading Wednesday after Bloomberg News reported the parties were close to an accord. Starz rose 13% to $32 in early Thursday. The shares had closed at $28.25 Wednesday in New York, giving the company a market value of about $2.8 billion. Lions Gate climbed 8.8% to $22.78 before the official market open Thursday.

The combination creates a more diverse media company, with annual revenue exceeding $4 billion. Its interests span film and TV production, and will include the Starz and Encore cable networks, serving about 56 million subscribers. Starz had 2015 sales of $1.7 billion, while Lions Gate tallied $2.36 billion.

Lions Gate has struggled at the box office as one of its biggest franchises, "The Hunger Games" concluded with no obvious replacement. This year, brought a series of box-office disappointments, such as "Gods of Egypt" and the last installment of its series "The Divergent Series," and the shares have fallen 35% this year.

The company has been growing its TV business, with shows like the popular Netflix series "Orange Is the New Black," to counter the volatile film business.

YouTube's paid service Red also just picked up the rights to a Lions Gate series based on the "Step Up" movies.

Starz airs movies and original programming and has introduced an online-only subscription video service. This month, CEO Chris Albrecht signed a new contract to remain until 2021.

-- Blooomberg News

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