The steady increase in middle market transactions that we noted in our first post of 2016 may reach into the film and entertainment industry. According to a recent LA Business Journal report, Lionsgate Entertainment Group, Inc. is considering a merger with premium cable network Starz.
Lionsgate’s revelation was found in a recent regulatory filing, and mirrored similar sentiment in a Starz filing where it indicated interest in finding a “mutually beneficial combination between the two companies.”
One possible, and common, benefit that the two companies would enjoy is higher profitability. Both companies are coming off quarters (and years) where profits were lower compared to prior years. For Lionsgate, profits were lower than expected stemming from lower ticket sales from the second installment of the “Hunger Games” finale. “Mockingjay Part 2” grossed $281 million in the United States and Canada, but that was 17 percent less than the previous film.
At the same time, Starz stocks dropped nearly 20 percent in recent trading. The impact of Starz largest shareholder having an interest in Lionsgate, combined with the disclosure in its regulatory filing, could have influenced the precipitous drop in value.
In the meantime, it remains to be seen whether this proposed merger will come to fruition. But it exemplifies the need for experienced legal counsel when considering a merger of this magnitude. Such a transaction could affect the financial health of each business for years to come, so it is critical that all due diligence be completed.
If you have questions about the legal issues and mechanics of a major merger, an experienced attorney can help.