SCHEDULE 13D: MHR Fund Management Discloses 13.3% Stake in Lionsgate Studios Corp. Post-Spin-Off, Securing Board Representation and Governance Rights

MHR Fund Management and its affiliates have filed a Schedule 13D, revealing a 13.3% beneficial ownership in Lionsgate Studios Corp. following the recent separation transactions, accompanied by significant investor rights and board nomination agreements.

Summary

• MHR Fund Management LLC and its affiliated entities (collectively, 'Reporting Persons') have disclosed a beneficial ownership of 37,867,658 Common Shares in Lionsgate Studios Corp., representing approximately 13.3% of the total outstanding shares as of May 6, 2025.
• The acquisition of these shares resulted from the completion of the 'Separation Transactions' on May 6, 2025, which spun off Lionsgate's motion picture and television studio operations (LG Studios Business) into the newly formed Lionsgate Studios Corp. (the 'Issuer') from the STARZ-branded premium subscription platforms (Starz Business).
• Pre-transaction Class A voting common shares of Old Lionsgate held by Reporting Persons were converted into 1.12 Common Shares of the Issuer, while Class B common shares were converted into 1 Common Share of the Issuer.
• The Reporting Persons acquired these shares for investment purposes and intend to continuously review their holdings, exploring various alternatives to create liquidity opportunities for their limited partners, including forming continuation vehicles, making in-kind distributions, or effecting public/private transactions.
• In connection with the separation, the Issuer, Fund Management, and Liberty Global entered into an amended and restated investor rights agreement, a voting and standstill agreement, and a registration rights agreement.
• The Investor Rights Agreement grants Fund Management the right to nominate 1 to 3 directors to the Issuer's board, depending on their aggregate beneficial ownership of Common Shares (3 designees for >= 10M shares, 2 for >= 7.5M but < 10M, 1 for >= 5M but < 7.5M).
• Initial director designees of Fund Management are Dr. Mark H. Rachesky, Emily Fine, and John Harkey (designated as an independent director).
• Fund Management and Liberty Global also received certain pre-emptive rights on future equity issuances for cash consideration.
• The Voting and Standstill Agreement mandates Fund Management and Liberty to vote their shares in favor of each other's director nominees as long as they retain nomination rights.
• The Registration Rights Agreement provides Fund Management affiliates with two demand registration rights and customary 'piggyback' registration rights, allowing them to register their shares for sale under certain conditions. These rights terminate when beneficial ownership falls below 28,568,868 Common Shares (approx. 10% of outstanding as of May 6, 2025) AND they cease to have a board representative.

Sentiment

Score: 6

Explanation: The document is largely neutral, formalizing an expected ownership structure and associated governance rights post-spin-off. The presence of a significant institutional investor with board representation can be seen as a positive for stability and oversight, though the stated intent for liquidity could introduce future selling pressure.

Positives

• The significant beneficial ownership by MHR Fund Management, a prominent investment firm, signals a strong institutional commitment to Lionsgate Studios Corp. post-spin-off.
• The Investor Rights Agreement provides MHR Fund Management with direct board representation, allowing for active oversight and strategic input, which can align investor and company interests.
• The pre-emptive rights granted to MHR Fund Management and Liberty Global on future equity issuances could protect their proportional ownership and influence.
• The registration rights facilitate potential future liquidity for MHR's limited partners, which can be a positive for the fund and its investors, potentially reducing overhang concerns if managed effectively.

Risks

• The Reporting Persons' stated intent to pursue 'liquidity opportunities' for their limited partners, including potential public or private transactions, could lead to future sales of a significant block of shares, potentially creating downward pressure on the stock price.
• The termination of registration rights and board representation is tied to ownership thresholds, which could incentivize sales if the Reporting Persons approach these thresholds, potentially impacting governance stability.

Future Outlook

The Reporting Persons intend to continuously review their holdings in Lionsgate Studios Corp. and evaluate various alternatives to create liquidity opportunities for their limited partners. These alternatives include forming a continuation vehicle, making in-kind distributions, or effecting public or private transactions. The timing and feasibility of these actions are subject to market conditions, transaction terms, and legal/regulatory factors.

Industry Context

This filing is a direct consequence of a significant corporate restructuring within the entertainment industry, specifically the spin-off of Lionsgate's studio assets from its STARZ streaming business. Such separations are often undertaken to unlock shareholder value by allowing distinct business segments to operate independently and pursue tailored strategies. The disclosure of a major investor's significant stake and associated governance rights is a standard post-spin-off development, providing clarity on the new entity's ownership structure and key investor influence.

Management Changes

Corporate Governance

Stakeholder Impact

• **Shareholders**: The formalization of a significant institutional investor's stake and governance rights provides clarity on the post-spin-off ownership structure. Potential future liquidity events by MHR could impact share price.
• **Management**: The presence of MHR's designees on the board will introduce new perspectives and oversight, potentially influencing strategic decisions.
• **Employees**: Indirectly impacted by the stability and strategic direction provided by the new governance structure and major investor involvement.

Next Steps

• Reporting Persons will continue to review their holdings in Lionsgate Studios Corp. on an ongoing basis.
• Reporting Persons may acquire or dispose of additional equity or debt securities of the Issuer in the future.
• Reporting Persons are considering various alternatives to create liquidity opportunities for their limited partners, including forming a continuation vehicle, making in-kind distributions, or effecting public/private transactions.
• The Issuer will include Fund Management's director designees on its slate for election at future annual shareholder meetings, subject to ownership thresholds.

Key Dates

Recommendation

Keywords

Lionsgate Studios Corp., MHR Fund Management, Schedule 13D, Beneficial Ownership, Spin-off, Corporate Governance, Investor Rights Agreement, Registration Rights, Entertainment Industry, Media Company, Film Studio, Television Production