Hunger Games Not Lions Gate's Only Blockbuster
When - or if -- The Hunger Games excitement wears off investors may recognize that Lions Gate's stock surge began when the film studio acquired Summit Entertainment, the maker of the Twilight vampire movies. That deal may one day be seen as a driver of Lions Gate's profits as the studio broadens its revenue on improved international distribution, a larger movie library and the final installment of the hit vampire saga.
|The Hunger Games, based on books by Suzanne Collins, arrives in theaters today.|
In January, a vampire-hungry Lions Gate bought Summit Entertainment for $412.5 million in cash and stock, finalizing what was a long-rumored deal that gave the producer of Mad Men the rights to produce the last "Twilight" installment, in addition to library rights to its previous four blockbusters, which netted $2.5 billion in global box office receipts.
But according to the terms of the deal, Lions Gate only had to put up $55 million in cash, $50 million in stock and a $45 million debt offering. Most of the remaining price was paid with cash on Summit Entertainment's balance sheet, with Lions Gate also refinancing a $500 million term loan collateralized by Summit's assets. It means that earnings benefits may far outweigh the leverage increase that Lions Gate incurred with the deal.
"We think the recent acquisition of Summit Entertainment is complementary to the many strengths of each company (film and TV production, global entertainment distribution, and film libraries) and adds critical mass, as well as expertise in film production and international distribution," wrote BMO Capital Markets analyst Jeffrey B. Logsdon in a Mar. 20 note upgrading the company's price target to $14, but downgrading its outlook to "market perform."