Posted by Matt Rosenberg on January 8, 2012 at 3:18 pm
According to people familiar with the situation (i.e. TheWrap.com & Deadline.com), Lionsgate and Summit have reached a much anticipated deal that is expected to be finalized this week. Lionsgate, the mid-major studio that has carved up a nice chunk of niche market films, has also managed to stick around in a town that often swallows up little guys. They’ve avoided buyouts, bankruptcy, acquisition, and the ferocity of tycoon investor Carl Icahn in mid 2011. Now, the studio behind the SAW franchise and the upcoming Hunger Games, which Lionsgate hopes to be a giant piggybank, has just acquired the Twilight Franchise with its purchase of Summit Entertainment. Let’s talk about some of the factors of the deal.
Finances – the deal is expected to be around $700 million in a combination of both debt and equity. Lionsgate, a publicly traded company under the ticker LGF, is expected to pay $400 million for Summit’s equity and will inherit over $300 million of Summit’s debt. According to Lionsgate’s most recent SEC filing, the company has $430 million in senior debt, $96 million in convertible debt, and various other production loans. Just looking at the plain debt alone, the company sits on almost $530 million in debt, and now has another reported $300 million getting added to that. I guess they really have HUGE HUGE hopes for The Hunger Games, the film based off the globally popular books.
Library - Summit Entertainment acquired Twilight from Paramount Pictures around 2006-2007, quite a boo boo on Paramount’s part if you ask me. The first Twilight was released in 2008 to the smiling faces of millions of tween girls. What amazes me is that Lionsgate purchased the company for only an estimated $700 million when Summit’s Twilight series alone has taken in almost $2.5 billion at the box office to date. Plus, Summit was also behind the first American Pie and Christopher Nolan’s first hit Memento. Seems that $700 million was a good deal. Now, Lionsgate will retain ownership of the films, which will be a nice addition to a library consisting of hits such as the SAW franchise, Sly Stallone’s The Expendables, and Michael Moore’s Fahrenheit 9/11.
Management - Jon Feltheimer, the masterful CEO over at Lionsgate since 2000, once again strut his shoulders to come out victorious. His ability to maneuver through deals and communicate with Wall St is nearly unmatched. He and partner Michael Burns, will assume full control over the newly formed company. While the agreement calls for Summit Co-Chairmen Patrick Wachsberger and Rob Friedman to run the motion-picture division of the combined company, other sources have said that the events of the deal have left a sour feeling between the four men. These sources also say that it would be shocking if the Summit chairmen made it 30 days into their new job. But, don’t be upset about their financial security, the Summit men own 30% of Summit and will get one heck of a pay day.
Location – Summit and Lionsgate sit maybe 400 feet apart in Santa Monica, making the geography of the acquisition very convenient. Their offices are just around the corner from one another. The Summit building will add a very nice second office to Lionsgate’s Santa Monica hub. Attention film students – I see hiring in the future for Intern runners who will be tasked with going back and forth throughout the day…so start getting in shape.
Overall – Talks of the two companies forming one have been going on for years now. Lionsgate had a very rough 2011 with only taking in an estimated $184 million at the box office. To put that in perspective, 5 of the 6 major studios (Disney, Warner Bros., Paramount, Sony, Universal, Fox) each took in over $1 billion from the domestic box office. Fox, which missed the $1 billion domestic mark by taking in around $850 million domestically, is considered to have had a bad year. Lionsgate was behind the mega let down remake Conan The Barbarian and box office disappointment Warrior. Even though Warrior, starring Tom Hardy and Joel Edgarton, was one of the better movies of 2011, a terribly poor marketing campaign resulted with the film taking in only $13.5 million at the box office. Who knows, maybe most of management’s time was spent facilitating this deal and a look towards the future instead of focusing on their current releases.
I think this deal makes a ton of sense. Despite a poor year, Liongate bolstered its arsenal of assets to gain a lot more presence in a town predominately run by six major studios. As we look towards the future and the upcoming Hunger Games franchise debuting in March, perhaps we will say seven major studios fairly soon.