Lionsgate CEO Jon Feltheimer

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In a move it has telegraphed for some time, Lionsgate unveiled a deal to spin off its studios business in a Special Purpose Acquisition Company (SPAC) deal to create a separately traded public company with a $4.6 billion enterprise value.  

The proposed SPAC-style merger follows strategic talks by the Jon Feltheimer-led company to spin off its studio division or Starz streaming platform. The studio business, comprising Lionsgate’s TV production and Motion Picture Group divisions and an 18,000-title film and TV library, will be combined with Screaming Eagle Acquisition Corp., a special-purpose acquisition rights company — often referred to as a a blank check company — led by SPAC sponsor Eagle Equity Partners and CEO Eli Baker.

The newly-merged entity, Lionsgate Studios Corp., will be a publicly-traded vehicle able to raise fresh capital and merge with existing businesses. Its biggest asset will arguably be its vast library of movies and television franchises. Rosenblatt Securities put a $5.2 billion value on Lionsgate’s library in May, meaning it’s worth more than how the whole studio is currently valued.

The media networks business, which mostly comprises Starz and its 28 million global subscribers, would remain in the existing publicly-traded company. 

The Hunger Games and John Wick studio is betting that creating two standalone companies by launching a new public company out of a current public company can value the Starz and studio assets separately and more generously. Use of a SPAC as a corporate carveout is also seen as a step towards eventual separation of the studio and Starz divisions by creating a publicly-traded pure play standalone company, but still allowing Lionsgate to maintain an attractive capital structure and control over the studio business.

“This transaction creates one of the world’s largest independent pure play content platforms with the ability to deliver significant incremental value to all of our stakeholders,” Lionsgate CEO Jon Feltheimer and vice chair Michael Burns said in a statement about potentially better defining the current value and future growth prospects of the Hollywood studio.

“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,” the statement added.

Lionsgate acquired certain assets of Entertainment One from Hasbro for $500 million and the Hollywood studio also looks set to acquire an even bigger unspecified majority stake in production and management company 3 Arts Entertainment.

A transaction that separates Lionsgate’s studios business and Starz has been in the works for some time and had been pushed to 2024 after the company unveiled an acquisition of producer eOne, which has backed series like The Rookie, Yellowjackets and Naked and Afraid. 

An estimated 87.3 percent of available shares in Lionsgate Studios will continue to be held indirectly by the parent company, Lionsgate, while Screaming Eagle public shareholders are set to directly own around 12.7 percent of the combined company. Common shares in Lionsgate Studios will trade separately from class A and class B shares in the parent Lionsgate company.

Lionsgate Studios will also operate separate from Starz, the premium cable and streaming platform that will continue to be owned and operated by the Lionsgate parent company. The SPAC transaction is expected to deliver around $350 million of gross proceeds to Lionsgate, including $175 million in financing already committed by institutional investors.

Lionsgate will use the proceeds to bolster its balance sheet and complete strategic initiatives like the acquisition of Entertainment One scheduled to close by the end of the year. The SPAC transaction, subject to shareholder and regulatory approvals, is expected to close in the spring of 2024.

Lionsgate’s top management will hold an analyst call to discuss the deal on Jan. 4.