By Ciara Linnane
Lions Gate Entertainment Corp. said Wednesday it’s now focusing on spinning off its studio business, instead of its Starz cable channel, sticking with a plan to separate the two despite volatile markets.
The movie and television production company had said in May it was considering selling or spinning off Starz, a pay-TV and streaming service that’s known for series such as “Outlander” and “Power.” The company acquired Starz for $4.4 billion in 2016.
“As negotiations progress, we have increased our focus on the possibility of spinning our studio business, creating a number of financial and strategic benefits,” the TV and streaming business said in a regulatory filing. “In that regard, we are continuing productive negotiations with prospective strategic and financial partners on both sides of our business.”
The company /zigman2/quotes/204255612/composite LGF.B -5.62% has said it expects the two businesses would fetch a higher valuation separated than together. On its most recent earnings call, management said they expected to finalize a deal by the end of September.
Cowen analysts said it makes little difference to shareholders which asset is spun out and which is the ‘parent’, apart from technical details around such things as taxes and debt covenants.
“In order to create value, the company needs to find an external buyer who will put actual capital up for one or both assets, both creating a mark for the asset and helping lower company leverage,” analysts Doug Kreutz and Mei Lun Quach wrote in a note to clients.
” While current market conditions are undoubtedly hindering this process, we also think the strategic rethink that is going on about content spending at some (if not all) large streaming services may also be a negative factor weighing on potential valuation.”
Separately, the company said early Wednesday that it’s rebranding its premium international streaming service Starzplay as Lionsgate+ in 35 countries, which will coincide with the rollout of a new graphics package and brand appearance. The rollout will start on Thursday. In the U.S., it will remain as Starz.
“We believe this is largely due to a desire to distinguish its product from Disney’s /zigman2/quotes/203410047/composite DIS +0.74% Star-branded DTC service,” said the Cowen analysts.
Cowen has an outperform rating on the stock and a $15 price target that’s more than double its current price of $7.75.
Shares were slightly higher Wednesday, but are down 50% in the year to date, while the S&P 500 /zigman2/quotes/210599714/realtime SPX -0.09% has fallen 23%.