Lions Gate’s Amazon Pact Is Seen as Step Toward Possible Takeover

(Bloomberg) -- Lions Gate Entertainment Corp. is one of the last independent film studios in Hollywood. But it might not stay that way forever.

That's the hope of investor John Kornitzer, the fourth-largest holder of Class A shares in the company, which produced “The Hunger Games” and the Tyler Perry films. He sees a new partnership with Amazon.com Inc. as the first step toward a possible takeover by the e-commerce giant -- a move that would deliver a payday to beleaguered investors in the studio. Lions Gate has lost about a third of its value this year.

Amazon is working with Lions Gate to launch the studio's Starz network internationally on the Prime Video service. If that rollout is successful, Amazon might swallow up the film and TV producer to bolster its video lineup, said the investor, who serves as president of Kornitzer Capital Management.

“Who knows?” he said in an interview.

A suitor like Verizon Communications Inc. also could swoop in and acquire Lions Gate, Kornitzer said. Still, that company has disavowed any plans to buy a traditional entertainment company.

Despite the stock's struggles this year, it's put together a small winning streak. Lions Gate shares climbed as much as 6 percent Friday, extending Thursday's gain and potentially marking a fourth straight day of advances. Vice Chairman Michael Burns reported buying 50,000 shares this week, a sign that management has faith in the company's long-term outlook.

Lions Gate also posted better-than-expected earnings last month. And Starz shows like “Outlander” and “Power” are helping fuel subscriber growth.

If Lions Gate can string together three or four quarters of good results, the stock is “going to go way up,” Kornitzer said.

Why This Matters

Kornitzer's not the kind of investor that often speaks out, FBN Securities' Rob Routh said in an interview.

"It's not like the rumor mill type of investor, and they've owned the stock for as long as I can remember," Routh said. "I think those folks are considered straight shooters."

Routh said that there are a lot of factors to consider in a potential deal, and if Amazon isn't the answer, "the question becomes price, structure and who?"

In February, a Variety report recalled that toymaker Hasbro Inc. had been in talks to acquire Lions Gate for $40 a share, a deal that was later axed over price disagreements.

"People always go 'they have to sell, they have to sell' -- no they don't," Routh said. "There are also opportunities to get bigger" and Lions Gate could purchase Metro-Goldwyn-Mayer Studios Inc., CBS Corp., Viacom Inc. or Paramount Pictures.

"There are a zillion potential options, the only thing we know is something is going to happen," Routh said. "The question is will they be predator or prey?"

To contact the reporter on this story: Kamaron Leach in New York at kleach6@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Christiana Sciaudone, Nick Turner

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