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By Katey Rich, June 30, 2016

Courtesy of Starz.

Starz, once a premium-cable network on the upper reaches of the dial in search of an identity, is now a confirmed Hollywood power player—a $4 billion one, at that. Lionsgate announced plans today to acquire the network to the tune of $4.4 billion in cash and stock, creating what a press release touts as “the largest independent television business in the world.”

On the power of mega-hit Outlander, which draws a fervent audience and the kind of weekly speculation that makes it one of television’s few rivals to Game of Thrones–level obsession, Starz has recently elbowed its way into the outrageously crowded market for original TV series. It’s a place Lionsgate was already familiar with; the studio may be famous for producing the Hunger Games films and Now You See Me, but on the television side they have backed Mad Men and Weeds, two shows that paved the way for the original-TV content boom.

The sale to Lionsgate also serves as a redemption story for one of the key figures in creating modern television, Chris Albrecht, the former C.E.O. of HBO who left the company in 2007 amid personal scandals after a 17-year run that saw the debut of era-defining hits The Sopranos and Sex and the City. When he joined Starz in 2010, as he told Vulture he aimed to replicate the buzzy success of those shows, but with a modern twist: targeting “voracious users of social media.” By targeting shows at audiences otherwise underserved by premium TV—such as the women who flock to Outlander or the African-American fan base for Power—Albrecht reasoned, “Those groups, when you can lock them in as fans of something and deliver them the quality, deliver them the experience that they’re looking for, they then are a better marketing tool than a paid ad, or a ‘Nominated for 6 Emmys’ headline.”

Lionsgate knows a thing or two about that audience targeting as well, having built one of history’s only female-led action franchises around The Hunger Games and, through subsidiary Summit Entertainment, created a monolith out of the romantic Twilight novels. A Lionsgate purchase of Starz had been rumored for some time; Lionsgate purchased stock in Starz last year. And the company doesn’t seem to be aiming to make any huge changes on the pay cable network it just purchased; Starz announced earlier this week that Albrecht will remain as its chief executive through at least 2021. Peak TV, and the man who helped invent it, aren’t going anywhere anytime soon.

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Lionsgate’s $4.4 billion deal to buy Starz will turn the entertainment companies into a “global content powerhouse,” Lionsgate CEO Jon Feltheimer told investors on Thursday.

In a conference call following the announcement that terms of a pact had been reached, Lionsgate and Starz brass predicted that the long-gestating union will help transform the cable and film businesses and allow them to better compete in a media marketplace dominated by conglomerates. At the same time, Feltheimer refused to rule out breaking out the checkbook for another acquisition, saying that Lionsgate will be “ready for any opportunist that come our way.”

The pact brings together Lionsgate, the studio behind “Orange Is the New Black” and “The Hunger Games,” and Starz, the maker of “Outlander” and “Black Sails.” It also fulfills billionaire investor John Malone promise of consolidating smaller entertainment companies so they can better withstand the disruptions taking place in the media space — a series of shockwaves being set off by the rise of digital streaming services and the migration away from traditional distribution platforms like cable and theatrical exhibition. Merger talks have moved forward in fits and starts since 2015 when the Malone-controlled Starz swapped stock with Lionsgate.


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Lionsgate to Acquire Starz for $4.4 Billion

In a call, Feltheimer predicted that bringing Starz into the fold will help Lionsgate better compete in a “fat bundle, skinny bundle, or no bundle” future — a reference to television companies’ habit of selling packages of their more desirable channels with their less popular ones to cable providers. There are fears that as consumers ditch cable packages for digital offerings they will undermine the financial underpinnings of many entertainment players.

It was a call that was full of big promises and light on details. Lionsgate brass said that buying Starz will allow them to achieve synergies without detailing those cost savings. They also said that they planned to talk to Metro-Goldwyn-Mayer and Viacom about their role in Epix, a cable joint venture, without saying definitively if they planned to unload their stake now that they could have their own in-house pay-television arm in Starz.

“We look forward to having conversations with [our partners] about maximizing our mutual investment,” Feltheimer said.

Lionsgate did say that it planned to retain Starz CEO Chris Albrecht, who has been credited with growing the cable channel’s original programming. Earlier this week, Albrecht renewed his deal to stay at Starz through 2020.

“The opportunities are enormous,” Albrecht said. “I’m looking to just contribute in any way that I can.”

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Lions Gate Agrees to Buy Starz in $4.4 Billion Deal
Deal merges maker of ‘Hunger Games’ with the operator of pay-television networks
Lions Gate has agreed to acquire Starz, maker of the ’Outlander’ series, shown above. MILLER/ASSOCIATED PRESS
Updated June 30, 2016 9:43 a.m. ET

Filmmaker Lions Gate Entertainment Corp. agreed to acquire Starz in a cash-and-stock deal, valued at $4.4 billion with debt, that combines the maker of the “Hunger Games” movie franchise with the operator of pay-television networks.

The deal brings together two companies connected to cable mogul John Malone. Last year, Mr. Malone exchanged a portion of his Starz stake for a 3.4% position in Lions Gate. Through the swap, Lions Gate got a 4.5% stake in Englewood, Colo.-based Starz, and Mr. Malone, Starz’s largest voting shareholder, became a board member at Lions Gate.

The companies had long seen to be potential partners. Lions Gate said in February that it wanted to explore a deal with Starz, and talks between the companies fell through in 2014.

Under the terms of the cash-and-stock deal announced Thursday, Starz’s Class A shareholders would receive $18 in cash per share and two-thirds of a share of Lions Gate’s nonvoting stock, translating to $32.21 a share based on Wednesday’s closing price. That represents a 14% premium to where Starz’s Class A shares closed Wednesday.

Holders of Starz’s Class B shares will get $7.26 a share in cash, 0.63 of a share of Lions Gate’s voting stock and 0.63 of a share of Lions Gate’s nonvoting stock. That translates to a per-share value of $33.73, a 20.6% premium to where the stock closed Wednesday.

Lions Gate has been investing in television production while producing shows for various networks. On Thursday, Lions Gate said the tie-up with Starz increases its content creation capabilities, grows its distribution footprint and paves the way for new content partnerships.

The combination “will enable us to compete successfully in today’s rapidly evolving global entertainment marketplace,” Lions Gate Chairman Mark Rachesky said.

Starz, creator of shows such as “Outlander” and “Black Sails,” reaches 24 million U.S. subscribers with its flagship platform.

The companies said they expected to complete the deal by year-end.

In morning trading in New York, Starz’s Class A shares rose 13% to $31.87, while its B shares added 17% to $32.73. Shares of Lion Gates, down 35% this year through Wednesday, jumped 7.3% to $22.46.

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