Alibaba & Lions Gate: A Perfect Match To Drive International Growth?

Alibaba Group Holding Ltd (NYSE: BABA) and Chairman Jack Ma may acquire a 37.4 percent de facto controlling interest in Lions Gate Entertainment Corp. (NYSE: LGF) by acquiring Mark Rachesky's stake, The New York Post reported.

The studio behind the popular "Hunger Games" franchise could benefit from Alibaba's involvement, according to Matthew Harrigan of Wunderlich Securities.

"Ensuring creative autonomy and intermediate value maximization for Lions Gate could suggest a strategic investor rather than an outright sale that could subsume its entrepreneurial culture," Harrigan wrote.

The two companies are already familiar with each other. During the summer, Lions Gate finalized a streaming deal with Alibaba to bring LionsgGate content to Alibaba's next generation set-top boxes. The analyst notes this is a positive for Lions Gate as just three years ago it had "virtually nil sales" from China.

Harrigan states that Lions Gate's future margins should benefit from growing its platform in the global stage, along with a higher presence in streaming and merchandising contributions.

Despite a potential agreement with Alibaba, Lions Gate still needs to demonstrate to its investors it can create new franchises to fill the gap once the "Hunger Games" series terminates. The analyst notes that the company will need to create brand value for merchandising, games and location-based entertainment.

Shares of Lions Gate are Buy rated with a $37 price target but could trade as high as $42.50 if the company sees better-than-expected global results for the remainder of the "Hunger Games" and "Divergent" series.

Shares of Alibaba are not rated at Wunderlich Securities.