Lionsgate Buys Summit for $412.5M in Cash and Stock Plus Debt

Lionsgate has finally closed its long-anticipated deal to buy Summit Entertainment; the merging of the two largest independent media companies creates a new massive independent entertainment company, which will release 10 to 14 movies a year.

Twilight Eclipse
Summit Entertainment
Twilight Eclipse

The price for Summit, the maker of the popular "Twilight" franchise is $412.5 million—about $350 million in cash, plus about $50 million in stock, plus the assumption of $300 million in debt.

This deal comes as Lionsgate readies to release “Hunger Games” in March. Like "Twilight," "Hunger Games" is based on a best-selling novel, which has over 3 million copies in print in the US alone. And Lionsgate hopes to turn it into a major franchise by turning the next books in the franchise into films as well. The idea is that Summit’s executives will use their expertise from making "Twilight" into one of the biggest film franchises of all time. With Lionsgate’s horror franchise, Saw, it seems the new company could invest in its ability to target young adults.

Lionsgate says the deal will be “significantly accretive” to Lionsgate shareholders. And after Lionsgate reported a $26.4 million loss in its most recent fiscal quarter, Wall Street seems to agree. Stifel Nicolaus analyst Ben Mogil says that "Twilight" alone will make the acquisition worthwhile. He predicts that the "Twilight" franchise will generate at least $1.4 billion in revenue by 2017. Evercore Partners analyst Alan Gould points out that Lionsgate has a successful history of horizontal, rather than vertical acquisitions.”

The merger of the two independent studios should generate some operating savings, while also creating a more diversified content company. Lionsgate also has TV, distribution and Internet businesses, while Summit brings a film library, which Lionsgate can add to its cable channel, Epix. Being a bigger independent company will help the independent studio have more leverage when negotiating deals and when dealing with the likes of corporate raider Carl Icahn, who unsuccessfully attempted a takeover of Lionsgate.

The deal is structured so that Lionsgate CEO Jon Feltheimer and Co-Chairman Mark Rachesky retain control – the stock is just about five percent of the studio. And though Summit has a mountain of debt, much of the $300 million on its balance sheet, it’s remaining on its balance sheet, and off Lionsgate’s. Plus, it should be largely paid off by proceeds from ‘Twilight.’

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