Argus Gives Investors Its Take On Lions Gate-Starz Deal

Lions Gate Entertainment Corp. (USA) LGF intends to acquire premium cable network company, Starz STRZA in a cash and stock deal worth a total enterprise value of $4.4 billion.

Argus’ Joseph Bonner reiterated a Buy rating on Lions Gate Entertainment, with a price target of $34.

Valuation Reasonable

Bonner mentioned that while the valuation of Starz is reasonable, the acquisition entails meaningful risks, including “regulatory hurdles, the ability to achieve projected synergies, and questions about the future of the traditional cable channel package.”

The analyst pointed out that Lions Gate Entertainment has been able to successfully integrate past acquisition, especially the Summit acquisition in 2012.

Related Link: The Acquisition Of Starz Should Help Lions Gate Diversify

If the Starz deal closes, it would “test the integration skills of LGF management,” although it would also offer Lions Gate greater distribution scale for its original television and film content.

Accretion From The Acquisition

According to the Argus report, “Management expects the merger to generate “significant synergies” and be “highly accretive to earnings and free cash flow,” though neither the synergies nor the accretion have been quantified.”

The parties have highlighted the scale of the transaction, as well as the cost saving opportunities.

Lions Gate Entertainment expects to be able to retain rights to its own internally developed content so as to maximize the value of that content.

“The merger should also enhance Lionsgate’s diversification strategy through the growth of ancillary businesses, including live exhibition, live shows, theme parks, and videogames and through the increased exploitation of Starz original content,” Bonner added.