Lionsgate Studios will split off from Starz in a SPAC deal to become a new publicly traded company

The studio, motion picture group, and film and television libraries will merge with Screaming Eagle Acquisition Corp., a SPAC (special purpose acquisition company) headed by Eli Baker. This announcement means that Lionsgate’s long-standing plan to split the studio with Starz is finally set to go forward.

Lionsgate Studios’ enterprise value is set at $4.6 billion by this deal. Proceeds from the purchase, including $350 million, will be used by Lionsgate for strategic initiatives, such as eOne-related ones, and debt repayment.

The separation will mainly make Lionsgate Studios one of the largest worldwide pure-play publicly-traded content companies; moreover, it may make the studio a desirable acquisition target, which will feed media M&A rumours even more. The separation is anticipated to close in the spring. A strong film and television production and distribution firm, a top talent management and production organisation, a sizable film and television library that generates significant revenue, and franchise titles The Hunger Games, John Wick, The Twilight Saga, and Ghosts are all part of Studios’ portfolio.

CEO Jon Feltheimer announced in August that Lionsgate, which has been planning to split the studio and Starz for almost two years, would reveal the news in the first quarter of 2024. A consideration was the state of the market, and the plan was to hold off until after the business completed its acquisition of eOne from Hasbro, which is scheduled to be revealed next week.

Right now, things are really nice. Lionsgates had a successful year at the box office this year, and the stock is up, fresh off of The Hunger Games: The Ballad of Songbirds & Snakes. “a valuation more reflective of the studio business’s outlook than what Lionsgate’s current consolidated valuation reflects,” is what management thinks Lionsgate’s stand-alone studio division can achieve.

An interesting solution is SPAC. These are shells that go public, raise capital, and have a two-year window in which to merge with a real business. On Wall Street, SPACS come and go in style, but Screaming Eagle has a distinguished history. In collaboration with Jeff Sagansky and others, Harry Sloan, a seasoned media executive and current board member of Lionsgate, has established some of the media and entertainment industry’s first and largest SPACs. Director of Screaming Eagle is Saganksy.

Following the transaction, parent Lionsgate is expected to retain 87.3% of the total shares of Lionsgate Studios, with the remaining 12.7% expected to be owned by Screaming Eagle public shareholders, founders, and investors in common equity financing.

Point being, Starz is not a part of Lionsgate Studios, and Lionsgate as the parent company will retain complete ownership of the platform. Both Lionsgate Studios and Starz will benefit from increased “strategic optionality,” according to Lionsgate.

“Coupled with the acquisition of the eOne platform scheduled to close next week, the expansion of our partnership with 3 Arts and the strong performance of our content slates, we’ve put together all of the pieces for a thriving standalone content company with a strong financial growth trajectory.”

“We are thrilled to be part of establishing Lionsgate Studios as one of the only pure play content companies in the public markets, which is well positioned to unlock value for both existing and new shareholders,” said Screaming Eagle CEO Eli Baker. “We believe this will be seen as one of the most innovative and value creating transactions the market has seen in some time.”

For a number of reasons, including “greater price discovery and confidence” and “lower share dilution than traditional SPAC transactions,” Lionsgate’s management stated that it believes the transaction with Screaming Eagle offers a more favourable structure than possible alternatives.