Wall Street mulls deal's benefits

Wall Street's initial undertake the Lionsgate-Summit Entertainment combination is the fact that Summit's debt was somewhat greater than anticipated. Financial experts also stated they wish to be aware of professional-forma equity stake that Summit's proprietors and managers will get within the deal, in addition to some detail about Summit's financials to be able to value the combined company. Lionsgate stated the offer was funded mostly through money on Summit's balance sheet. It did not say just how much that amount is, however it appears like the amount could be about $240 million, considering that the relaxation from the $412 million acquisition is going to be taken care of via a mix of Lionsgate cash and stock and bond sales worth $170 million. Summit's existing term loan -- "greater than I figured,Inch stated Ben Mogil of Stifel Nicolaus -- was refinanced having a $500 million debt facility guaranteed by Summit assets. The borrowed funds matures in 2016 but Lionsgate stated it anticipates payment "prior toInch the maturity date because of the functional income expected from Summit's business. Lionsgate stated the transaction, basically a utilized buyout, is anticipated to become considerably accretive to earnings for that 2013 fiscal year beginning in April. Mogil had predicted the collective franchise of Summit's five "Twilight" films will turn out $1.4 billion in revenue through 2017. Backing out royalties and participation obligations, and marketing and distribution costs, that will mean internet free income of $1 billion for Lionsgate over individuals 5 years -- excluding merger-related synergies. That leaves lots of cash for Lionsgate despite its smart lower Summit's debt. Actually, the offer itself, despite being the hookup of two creative content companies, is viewed in the pub like a purely an economic transaction to ensure Lionsgate an increase of low-risk, fresh cash. "I do not think anybody could argue by using it. But it is almost an economic investment, some receivables" from 'Twilight,'?" stated RBC Capital analyst David Bank. "It's what financial traders do, which men are great at this,Inch he added, mentioning to Lionsgate co-chairman and Boss Jon Feltheimer and vice chairman Michael Burns. "Time will inform if there have been better things related to the moneyInch than buy Summit, Bank stated. The emergency for Lionsgate to accomplish the offer, so it has started around since 2008, has elevated some questions. "One would need to request, 'Why could it be essential to allow them to buy this financial resource?'?" Bank stated. "Is Lionsgate concerned about its very own income moving forward?Inch Cash surely will begin streaming in from Summit profits on the newest "Twilight" release ("Breaking Beginning -- Part 1"), along with the approaching final installment ("Breaking Beginning -- Part 2," due in theaters in November), and in the "evergreen" advantages of a set that's fairly foreseeable. Because cash outlays for "Twilight" will conclude using the final pic, all subsequent revenue becomes free income for that studio. "You will find always nuances in movies when it comes to pay contracts and all sorts of that. However, you remove lots of overhead (by mixing procedures) and without effort that ($400 million) feels as though an acceptable number, stated Matthew Harrigan of Wunderlich Investments. Numerous experts stated, however, that with no more financial particulars on Summit's business you can't really value the agreement with any certainty. Mogil believed the three final "Twilight" films will generate revenue of $200 million between 2012 and 2017. The final two will turn out first-cycle revenue around $1.2 billion -- minus $200 million from costs connected using the theatrical discharge of "Breaking Beginning -- Part 1" and minimum foreign guarantees. He sees the 2 photos producing additional second-cycle revenue of $200 million. Harrigan includes a "buy" recommendation on Lionsgate and it has been predicting a large uptick in income without or with Summit, partially due to former The new sony television professional Feltheimer's success around the TV side. He stated he sees 2012 as something of the transition year having a potential triple-digit uptick in income in 2013. Lionsgate may be the studio behind cable staples "Weeds," "Mad Males" and "Nurse Jackie." Its new Epix pay-TV partnership with Vital an MGM is lucrative because of its well-timed and groundbreaking output cope with Netflix. All agree the security of Summit money is timely like a hedge against the potential of a disappointing performance by "The Hunger Games." Lionsgate is relying on the greatly over-blown film opening in March and in line with the Suzanne Collins trilogy to bring in the dollars and launch a effective new franchise. It is a good risk, but nonetheless a danger. Openly exchanged stand alone galleries like Lionsgate and DreamWorks Animation are unusual in media space, as well as their shares -- and investor sentiment -- can ricochet around the failure or success of 1 large film. Lionsgate management may also be pilloried if this moves from decently listed photos, most strongly by corporate raider Carl Icahn, who lately attempted but unsuccessful to set up a brand new board to remake the executive suite. The studio had three high-profile poor performers this past year having a "Conan the Barbarian" reboot, "Abduction" and "Warrior." "The Hunger Games," at $80 million, may be the most expensive pic ever for Lionsgate. But Hollywood and Wall Street are generally keeping the belief that it'll function as the bonanza everybody needs. Stated Harrigan: "It's type of entered the stage where there's lots of doubt, meaning it's got a lot attention popular culture-smart it's nearly impossible it will not perform a large number." Contact the range newsroom at news@variety.com