Lions Gate Sinks as Weak Results Threaten More M&A Pressure
Lions Gate Results May Put More Pressure on Studio to Seek Deal
(Bloomberg) -- Lions Gate Entertainment Corp. fell the most in seven months after posting disappointing fourth-quarter results, adding pressure on management to pursue a deal.
The entertainment company, which held preliminary talks to sell its Starz pay-TV network to CBS Corp., has been struggling to thrive as an independent studio. Sales and profit last quarter missed analysts’ forecasts, underscoring the tough competition it faces.
The stock dropped as much as 7.7%, the most since Oct. 24, in New York trading Friday. Lions Gate had advanced 15% on May 17, when the talks with CBS were first reported.
A smaller film slate and a drop in TV production revenue led to lower sales and profit for the period ended March 31, and theatrical releases like “Cold Pursuit” failed to click with moviegoers. Sales in the TV division, which makes “Orange Is the New Black” for Netflix, slumped 7.4%.
The Starz network has been a bright spot for Lions Gate, and the company boosted investment in the division last quarter. But it hasn’t been enough to get Lions Gate back on track. The shares have plunged 61% since November 2015, pressuring the studio to deliver more from its film library, movie slate and pay-television businesses.
Major media companies like Walt Disney Co. are bulking up to compete with Netflix Inc. and Amazon.com Inc. as more consumers turn to streaming for entertainment. While Starz has an online business, it doesn’t have a swath of channels like the ones that give larger media companies clout in the business.
International Rollout
The company -- backed by chairman Mark Rachesky, with 19 of the stock, and cable billionaire John Malone -- confirmed those discussions on Thursday, saying such a move would help Lions Gate reduce debt. Executives declined to comment on talks with CBS, instead saying the company was “super confident” in its existing plan and was focused on executing it.
Sales for the quarter fell to $913.7 million, missing analysts’ estimates of $947.7 million. Excluding some items, profit was 11 cents a share, below projections of 22 cents.
Customer Growth
On the bright side, Starz added more than 1 million customers over the past year, reaching almost 25 million last quarter. And the success of Lions Gate’s “John Wick 3” movie will help bolster results in the current period.
“Last weekend, ‘John Wick 3’ opened as the No. 1 movie in the world, nearly doubling the box office of the last installment,” Chief Executive Officer Jon Feltheimer said on a conference call. The performance cements the film series as “one of the world’s premier action franchises,” he said.
To contact the reporter on this story: Anousha Sakoui in Los Angeles at asakoui@bloomberg.net
To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net, Rob Golum, John J. Edwards III
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