Lions Gate, Summit homing in on key details for proposed merger

Dec. 1, 2011 5:12 PM PT

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Lions Gate Entertainment and Summit Entertainment are homing in on key details of a merger plan as executives on both sides press to reach an agreement by the end of the year, said knowledgeable people who requested anonymity because the talks are private.

Under terms being discussed, Lions Gate (‘Saw,’ ‘Precious’) would acquire its Santa Monica neighbor Summit (‘Twilight,’ ‘The Hurt Locker’) for around $350 million to $400 million, consisting primarily of cash along with a small amount of stock, one of the people said. It would also assume roughly $200 million of Summit’s debt.

The stock payment would leave Summit’s shareholders with a stake of approximately 5% in the combined company, the people said.

In addition, it’s expected that Summit Co-Chairmen Rob Friedman and Patrick Wachsberger would lead the motion picture group of the merged studio, the people said. Both are experienced film executives, and Wachsberger has a particular expertise in international sales.

That scenario throws into question the future of Joe Drake, Lions Gate’s motion picture president, who has headed film operations since 2007. He has had a difficult run recently, with three consecutive flops: ‘Conan the Barbarian,’ ‘Warrior’ and ‘Abduction.’

Lions Gate Chief Executive Jon Feltheimer would continue to head the studio, along with his longtime lieutenant, Vice Chairman Michael Burns.

The deal points have not been officially agreed to yet, the people said, and it’s still possible that the merger won’t occur or that the terms will change.

Summit has also recently held talks with private equity firm Colony Capital, a major stakeholder in Miramax Films since the independent studio was sold by Walt Disney Co. last year, said a person familiar with the talks but not authorized to discuss them publicly. Colony is considering making an investment in Summit and combining either its film library or all of its operations with Miramax. The news of those talks was first reported by Deadline.

If those talks become serious and increase the asking price for Summit, it could derail the merger talks with Lions Gate, said a person close to the discussions.

Summit and Lions Gate, two of Hollywood’s largest independent studios, have held on-and-off talks about combining since 2008, with people close to both companies saying it would make sense to put together their complementary assets and consolidate those that overlap in an increasingly competitive industry. Summit is known for its strong foreign sales business, and Lions Gate has a growing television production business behind ‘Mad Men’ and three sitcoms produced by Tyler Perry.

Both studios have film production and marketing operations that would probably face cuts when combined.

Talks have become heated of late as Summit appears eager to do a deal before the release of the fifth and final movie in the ‘Twilight’ series, its largest cash cow, next November.

Lions Gate, meanwhile, is preparing for the March release of its own hotly anticipated young adult book adaptation, ‘The Hunger Games.’ The first of four planned movies comes out in March.

Because its stock has risen about 20% in the last three months and some of the value is based on anticipated revenue from ‘Hunger Games,’ Lions Gate does not want to issue a significant amount of equity in a merger, diluting its share value in the process, people familiar with the matter said.

A deal between the two companies has become easier to put together in the last few months, since Lions Gate dissident shareholder Carl Icahn sold nearly all of his 33% stake in October.

-- Ben Fritz

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