Lionsgate has unveiled its first quarter financial results as talks continue with multiple bidders on a possible sale or spinoff of the premium cable and streaming platform Starz or its studio business.
But a potential transaction that separates Lionsgate and Starz, which Wall Street has anticipated for well over a year, has now been pushed to early in 2024 after the company unveiled an acquisition of producer Entertainment One. “With the impact of the eOne acquisition on regulatory approvals, uncertainties surrounding the strike and our efforts to create the most efficient capital structure within a disruptive marketplace, we anticipate that the separation will now take place in the first quarter of calendar 2024,” Lionsgate CEO Jon Feltheimer told analysts during an after-market call.
“We felt this was something that we really didn’t want to miss,” Feltheimer added when asked whether the eOne deal was worth the delay to the studio spinoff plans, as he argued other regulatory and financial restructuring issues mattered more in pushing the transaction to early next year.
Lionsgate CFO Jimmy Barge added the studio would have more visibility on the Hollywood writers and actors strikes by the end of the year, which would “remove uncertainty” ahead of completing the separation transaction.
The studio chief added Lionsgate has forecast a $30 million hit so far from the Hollywood strikes if they run to the end of September, with the impact spread across its 3 Arts Entertainment talent management business and film and TV production businesses.
The studio unveiled a $500 million deal on August 3 to acquire eOne from Hasbro as the toy giant pivots to becoming a digital games giant. The deal is expected to close by the end of 2023. Also on Wednesday, the studio said Starz will exit Latin America by the end of the year as it focuses on the U.S., the UK, Canada and Australia.
That move reverses an expansive global push by Starz in recent years, which will now be constrained somewhat to English-speaking territories. Lionsgate earlier chose to exit markets for Lionsgate+ — its rebranded international Starzplay operations — in France, Germany, Italy, Spain, Benelux, the Nordic regions and in Japan.
The studio at the time said it would remain with Starz internationally in the UK, Latin America and Canada, but that has now been revised to exclude Latin America as it continues to reset expectations for the TV platform as it pivots online and is set to become a standalone business after a planned separation transaction.
During the latest quarter, Starz had a total of 29.4 million subscribers due to a sequential decline of 300,000 customers. On the streaming front, Starz ended the second quarter with 19.9 million global OTT subscribers, up 9 percent year-over-year.
Lionsgate saw its fourth quarter net loss attributable to shareholder shrink to $70.7 million, against a year-earlier loss of $119 million, on overall revenue rising 2 percent to $909 million, compared to a year-earlier $893.9 million. That beat by $24 million a Wall Street analyst forecast of $885 million in total revenue for the last quarter.
Lionsgate posted an earnings per-share loss of 31 cents, compared to a year-earlier per-share loss of 53 cents, which beat an analyst consensus of a 45 cents per-share loss. The adjusted earnings per-share of 4 cents, against a year-earlier loss of 23 cents per-share, beat an analyst estimate for a 23 cents per-share loss during the latest quarter.
The studio also reported record trailing 12-month library revenue of $896 million in the quarter from a mix of film and TV content. During the fourth quarter, the studio gained from the industry’s box office rebound as John Wick: Chapter 4 performed at the multiplex.
In segment results, media network revenue was virtually unchanged at $381.1 million, while the studio business, comprising the Motion Picture and Television production groups saw revenues grow 46 percent to $406.5 million, as John Wick 4 performed at the multiplex and in multiplatform releases.
During the analyst call, Felthheimer pointed to upcoming releases for The Expendables 4, Saw X and The Hunger Games: The Ballad of Songbirds and Snakes as cause to be bullish about Lionsgate’s movie release slate to the end of the year. The studio has also completed production on Ballerina, the latest spin-off from the John Wick universe.
“Beyond that, we have a strong roster of branded world-class properties including Dirty Dancing, Now You See Me 3 from director Ruben Fleischer and Highlander from John Wick director Chad Stahelski,” Feltheimer added as he talked up the Motion Picture Group.
Television production revenues fell to $218.5 million during the latest quarter, against a year-earlier $432.3 million, with last year having far higher episode deliveries.
Lionsgate is exploring its options for Starz, including a possible separation of the pay TV and streaming business and its studio operations. The goal will be creating two standalone companies so investors can value the Starz and studio assets separately as part of a transaction at last count was set to be unveiled by the end of September.
On Starz, Feltheimer pointed to a recent rate increase having impacted subscriber growth at the platform in the near term, even as it remains profitable, he added. Earlier, Lionsgate filed SEC paperwork around its planned separation into two publicly traded companies, while also working through organizational and governance issues accompanying the separation, which will include an intra-company agreement to in part maintain tax advantages.
A July 12 SEC Form 10 filing laid out the corporate structure of the separated studio and media networks businesses, to be relaunched as New Lionsgate and New Starz.
If the separation arrangement is approved, each holder of Lionsgate’s existing Class A voting shares will receive shares of a new Class A voting common stock of New Starz and shares of New Lionsgate’s voting common stock. And each holder of shares of Lionsgate’s existing Class B non-voting common stock will receive shares of new Class B non-voting common stock of New Starz and shares of New Lionsgate’s non-voting common stock on a pro rata basis.
The potential separation would aim to spin off the studio business, including the Motion Picture and Television Production groups, into a separately traded public company, while the media networks business, which mostly comprises Starz, would remain in the existing publicly-traded company.
Lionsgate’s Barge told analysts that the acquisition of eOne is expected to lead to annual cost synergies at between $55 million and $75 million.