Lionsgate and Summit Entertainment are in talks to merge their two companies, according to two people familiar with the negotiations.
The plan, if the deal goes through, is for Lionsgate to buy Summit’s library of six films and the rights to the “Twilight” franchise. Early talks last year involved the merger of only the domestic divisions, under the terms of the reported deal.
Executives at Lionsgate and Summit declined to comment for this story. But one Lionsgate executive, who declined to speak for attribution, said: “At this time there are no new conversations.”
Rumors of a proposed merger have abounded for months, and other executives familiar with the terms said the deal made sense.
But Lionsgate just paid $255 million to buy the TV Guide Network and TVGuide.com, in a surprise move. So another high-ticket cash deal might be a stretch for the company.
For Summit, the deal would bring a cash payout after nearly two years of operation, with success coming only recently in the “Twilight” phenomenon, which followed a string of heavily-marketed failures. The studio, which was capitalized by investors led by Merrill Lynch with $1 billion over several years, but the terms of access to the capital have not been made public.
For Lionsgate, buying Summit would give the studio the rights to a guaranteed hit franchise which it could spin out for its television and video business. It would also be buying a slate of movies for its lucrative video distribution business.
The buzz of buying a hot franchise like “Twilight” might be just what Lionsgate needs to boost its ailing stock, down to half its value from a year ago.
A merger may also provide Lionsgate with access to a cable distribution deal through Summit’s new pact with Showtime. Lionsgate’s Showtime deal expired at the end of 2008, and its new cable channel – ‘Epix,’ with MGM and Paramount –does not yet have carriage.
After building a reputation for successful horror films, Lionsgate chief Joe Drake now has few movies in the pipeline. The studio’s latest film, the romantic comedy “New In Town,” flopped at the box office this weekend, taking in only $6.75 million. Merging with Summit will give him more movies to fill his distribution pipeline.
The merger would take place in the context of faltering independent studios, which have never been a reliable business in Hollywood. With diminishing outlets for smaller, specialty films, it may make sense for two medium-sized companies with less than robust film slates to join forces during an economic downturn.
“I see it,” said one rival studio executive. “But only at the right price.”
What that price might be is not clear. Rogue Pictures recently sold for $150 million to Ryan Kavanaugh’s Relativity Media, and Summit may well argue that its library and “Twilight” are worth more than that.
According to one executive familiar with the conversations, talks began last year before Summit hit the jackpot with the teenaged vampire hit, “Twilight,” which cost less than $40 million to make and has taken in a breathtaking $341 million around the world.
At that time, Summit was not looking like a very good bet. Founded in the spring of 2007, the independent studio was struggling after releasing multiple films that did poorly at the box office. Flops included as “Penelope,” which took in $21 million worldwide, and “Sex Drive,” which took in a paltry $14 million.
Talks progressed far enough that that Lionsgate executives were reading Summit’s scripts, watching their trailers and evaluating marketing materials for upcoming films.
But the negotiations broke down over disagreement about how to set values on future Summit films. Lionsgate considered the Summit slate to be overvalued given the studio’s track record, according to one knowledgeable executive.
For an independent studio, Summit carries relatively high overhead, with 140 employees, and has spent sums into the $35 and $40 million range on marketing its movies. Studio co-chairman Rob Friedman comes from a big studio background, having headed marketing at Paramount for years before cofounding Summit with Patrick Wachsberger.
Meanwhile, the president of theatrical at Lionsgate Tom Ortenberg left the company last week after 12 years. He defected to a newly-created position at The Weinstein Company; no one at Lionsgate would comment on whether this was related to any possible merger talks with Summit.