By Mike Murphy
Shares of Lions Gate Entertainment Corp. shot higher in after-hours trading Thursday after the entertainment company said it is weighing whether to spin off or sell its Starz unit.
In its fiscal first-quarter earnings report, Lions Gate said its board of directors has been given the green light to explore “alternative paths” for Starz.
“While we continue to realize substantial synergies from bringing Lionsgate and Starz together, we also see the opportunity to potentially unlock significant shareholder value under a scenario where investors have the ability to value our studio assets and Starz separately,” Lions Gate Vice Chairman Michael Burns said on the company’s earnings call. “Recent transaction multiples in the media space give us confidence that exploring alternate paths is prudent.”
Lions Gate acquired Starz for $4.4 billion in 2016 , a move that strengthened its television business but added to its debt load.
The premium cable channel has its own streaming service, with about 18 million streaming subscribers worldwide — about half as many as rivals such as Apple /zigman2/quotes/202934861/composite AAPL -1.89% TV+, Comcast’s /zigman2/quotes/209472081/composite CMCSA -2.90% Peacock and ViacomCBS’s /zigman2/quotes/200340870/composite VIAC -4.37% Paramount+.
Talk of a potential sale immediately sparked speculation amid a wave of consolidation within the entertainment-media industry. Most recently, the Walt Disney Co. /zigman2/quotes/203410047/composite DIS +0.22% acquired most of 21st Century Fox, Amazon.com Inc. /zigman2/quotes/210331248/composite AMZN -1.99% has agreed to buy MGM , and Discovery Inc. /zigman2/quotes/200511275/composite DISCA -4.94% plans to merge with WarnerMedia , owner of HBO Max.
Starz, which features prestige series such as “Blindspotting,” “Outlander” and “P-Valley” as well as recent movies, could be an attractive target for streaming services with money to spend and looking to bulk up their library, such as Amazon Prime Video or Apple TV+.
Nilay Shah, Lion’s Gate’s executive vice president, said on the conference call that the process is just beginning and there is no timeline. However, “it’s pretty clear to us that we’re not getting the value of some of our parts. And we in the board feel now at the right time to really shine value on those assets.”
Lions Gate’s Class A shares /zigman2/quotes/200343824/composite LGF.A -3.82% shot nearly 7% higher in after-hours action Thursday, after closing the regular session little changed at $13.87. Lions Gate stock is up 22% year to date, compared to the S&P 500’s /zigman2/quotes/210599714/realtime SPX -1.84% 25% gain this year.