DEFM14A: Lionsgate to Spin Off Studio Business, Creating Two Separate Public Companies

Lionsgate shareholders will own stakes in two distinct entities: Starz Entertainment Corp., focused on the Starz premium subscription platform, and Lionsgate Studios Corp., housing the motion picture and television studio operations.

Summary

• Lionsgate is separating its motion picture and television studio operations (the LG Studios Business) from its Starz premium subscription platform (the Starz Business).
• This will create two independent, publicly traded companies: Starz Entertainment Corp. (STRZ) and Lionsgate Studios Corp. (LION).
• Current Lionsgate shareholders will receive shares in both new companies.
• LG Studios shareholders will receive shares in Lionsgate Studios Corp.
• The transaction is expected to be tax-free for U.S. federal income tax purposes, but may result in capital gains or losses for Canadian shareholders.
• Shareholder meetings for both Lionsgate and LG Studios will be held on April 23, 2025 to approve the transaction.
• The transaction is subject to various conditions, including shareholder and court approvals.

Sentiment

Score: 7

Explanation: The spin-off presents a strategic opportunity for both companies to enhance long-term value, but there are execution risks and potential negative factors that need to be considered.

Positives

• The separation allows each company to focus on its core business and pursue distinct growth strategies.
• It provides investors with two clear investment opportunities: a pure-play content studio and a pure-play premium subscription platform.
• The transaction is expected to enhance long-term shareholder value by allowing each company to optimize its capital structure and allocation.
• Employees will have stock-based compensation aligned with the performance of their respective companies.

Negatives

• The separation may result in a loss of scale and increased administrative costs for both companies.
• The historical financial information may not be indicative of future performance as separate entities.
• There is a risk that the anticipated benefits of the transaction may not be fully realized.
• The transaction may result in litigation or regulatory inquiries.

Risks

• The transaction is subject to shareholder approval at the meetings scheduled for April 23, 2025.
• Court approval is required for the arrangement to be completed.
• There is a risk that a viable and active trading market may not develop for the shares of either new company.
• Substantial sales of shares following the spin-off could depress market prices.
• Potential conflicts of interest may arise between the management and directors of the two companies after the separation.

Future Outlook

Following the spin-off, New Lionsgate new common shares are expected to trade on the NYSE under the symbol LION, and Starz common shares are expected to trade on Nasdaq under the symbol STRZ. While trading is expected to begin on the first business day following the completion of the Transactions, there is no assurance of a viable and active trading market. Neither New Lionsgate nor Starz expects to pay regular dividends in the foreseeable future.

Management Comments

• Jon Feltheimer, Chief Executive Officer of Lionsgate, supports the transaction and believes it will enhance long-term shareholder value.
• Jeffrey A. Hirsch, President and Chief Executive Officer of Starz, believes the separation will allow Starz to focus on its core business and pursue its own strategic priorities.

Industry Context

The media and entertainment industry is undergoing significant transformation, with increasing competition from streaming platforms and evolving consumer preferences. This spin-off reflects a broader trend of companies seeking to streamline their operations and focus on core competencies. The separation of the studio business from the distribution platform allows each entity to adapt more nimbly to market changes and pursue strategic partnerships.

Management Changes

Corporate Governance

Legal Proceedings

• Purported noteholders have filed a lawsuit against Lionsgate claiming a breach of the indenture governing Lions Gate Capital Holdings LLC's 5.500% senior notes due 2029, related to an amendment executed in connection with a note exchange.

Related Party Transactions

• Mr. Burns owns a 65.45% interest in Ignite, LLC, and Mr. Simmons owns a 24.24% interest in Ignite, LLC. During the year ended March 31, 2024, $0.3 million was paid to Ignite, LLC under distribution agreements.
• Mr. Sloan, a director of Lionsgate, was the Chairman of Screaming Eagle Acquisition Corp. and owned a material interest in the sponsor. He recused himself from decisions related to the Business Combination.
• Dr. Rachesky has a letter agreement with Lionsgate related to board nominations and certain transaction rights.

Stakeholder Impact

• Shareholders: Lionsgate shareholders will receive shares in both Starz and New Lionsgate, potentially benefiting from the future growth of both companies. LG Studios shareholders will receive shares in New Lionsgate.
• Employees: Employees of each business will have stock-based compensation tied to the performance of their respective companies, potentially increasing alignment and motivation.
• Customers: The spin-off is expected to enhance the focus on customer needs for both Starz and New Lionsgate, potentially leading to improved products and services.
• Creditors: The separation of debt and financial obligations between the two companies may affect creditor risk profiles. The purported noteholder lawsuit presents a potential risk to creditors.

Next Steps

• Lionsgate and LG Studios will hold shareholder meetings on April 23, 2025 to vote on the proposed transaction.
• Pending shareholder and court approvals, the transaction is expected to close shortly thereafter.
• New Lionsgate will apply to list its shares on the NYSE under the ticker symbol 'LION'.
• Starz will apply to list its shares on Nasdaq under the ticker symbol 'STRZ'.

Key Dates

Keywords

Lionsgate, Starz, Spin-off, Corporate Restructuring, Media, Entertainment, Motion Picture, Television, Subscription Video on Demand, Mergers and Acquisitions