Why Lionsgate’s Studio Is Splitting Up With Starz: CEO Pitches the Plan to Investors

Lionsgate's CEO Jon Feltheimer has stated that the proposed Special Purpose Acquisition Company (SPAC) deal which would separate the film and TV studio from the business is the most flexible route toward a full separation. During an after-hours call with financial analysts, Feltheimer said the deal would correctly value the studio and provide strategic options for the company. Last month, Lionsgate revealed plans to back a SPAC in order to create a publicly traded company valued at $4.6 billion. Feltheimer stated that this transaction would uncover hidden value within the company.

With the SPAC agreement expected to complete this spring, this follows two years of strategizing by Lionsgate. The studio, comprising of Lionsgate's TV and Motion Picture arms and a 20,000 title film library, will merge with Screaming Eagle Acquisition Corp., a blank check company led by CEO Eli Baker and Eagle Equity Partners. The merger would result in Lionsgate Studios Corp., a publicly traded entity, capable of raising new capital and merging with current businesses.

Interestingly, Feltheimer described the SPAC deal as closer to a subsidiary IPO, with the parent company holding onto 87.3% of Lionsgate Studios shares while Screaming Eagle Acquisition Corp. will own the remaining 12.7%.

Furthermore, Lionsgate vice chairman Michael Burns highlighted that selling the minority stake in the studios would establish initial studio value and create a stepping stone towards full separation. Lionsgate would have the surety of bringing in $350 million in gross funds to pay down its debt. In addition, securing $175 million in equity committed by leading investors is anticipated.

There is also a clear strategy to strengthen Starz, a wholly-owned subsidiary of Lionsgate, and better define it as a premium SVOD platform with an emphasis on valuable core demographics. Starz and its 28 million subscribers worldwide will remain under the current publicly traded company, while Lionsgate studios will become a separate entity. The rationale behind this is to accurately and favorably value Starz and Lionsgate Studios independent from their current joint valuation.

Burns stressed that the company's content creation strategy is entirely focused on securing maximum returns rather than feeding proprietary streaming platforms. Simultaneously, the value of Lionsgate's expanding content library in securing future profitability was emphasized.