Done Deal: Lionsgate Buys Summit for $412.5 M

Sale includes mixture of cash and stock

Lionsgate has purchased Summit for $412.5 million, the companies announced on Friday.

The two independent studios have been circling each other for months. The deal is being structured as a leveraged buyout, in the form of cash and stock.

Also read: Why the Imminent Lionsgate-Summit Merger Makes Sense

"We are uniting two powerful entertainment brands, bringing together two world-class feature film franchises to establish a commanding position in the young adult market, strengthening our global distribution infrastructure and creating a scalable platform that will result in significant and accretive financial benefits to Lionsgate shareholders," Lionsgate Co-Chairman and Chief Executive Officer Jon Feltheimer and Vice Chairman Michael Burns said in a statement.

"Rob Friedman and Patrick Wachsberger have built a remarkable organization, and we're pleased to welcome Summit's talented team to the Lionsgate family," the pair added.  

Colony Capital had also been pursuing Summit, but dropped out a few weeks ago, according to an individual with knowledge of the negotiations. 

Summit brings with it debt, but that will be paid off with profits from the final two “Twilight” movies, allowing Lionsgate to keep that sum off its own books.

The remainder was funded with $55 million of cash from Lionsgate, $45 million of cash received from a newly issued series of Lionsgate convertible notes, $50 million of Lionsgate common stock and an additional $20 million of cash or stock will be optioned by Lionsgate within 60 days.

The stock will amount to roughly 4 percent of Lionsgate's shares. 

The debt that Summit took on last spring, has been refinanced into a new $500 million loan, which will be paid off by 2016. Lionsgate said it anticipates retiring the debt before that date. 

Summit co-chairs Rob Friedman and Patrick Wachsberger will likely oversee Lionsgate’s film division, but no contract has been signed, according to individuals with knowledge of the situation. If a deal is completed, Friedman would likely oversee domestic operations for the merged companies' film operations and Wachsberger would handle the international end.

An announcement on the new management team is expected in the next few weeks, according to an individual with knowledge of the matter. 

The deal places a question mark over the future of production chief Joe Drake. It also means one less buyer in an already reduced indie landscape — and layoffs at the two companies.

Lionsgate will get a modest library of titles that also includes “The Hurt Locker” and “R.E.D.,” which it can add to its paid TV network Epix. Perhaps more important, Lionsgate will gain Summit’s expertise in international distribution — an area where it is lacking.

However, insiders at both studios feel that Summit’s experience in transforming the vampire "Twilight" series into a global box office phenomenon can help Lionsgate pull off a similar feat with "The Hunger Games." This could help turn the studio, a launching pad for mid-budget genre films, into a lekking ground for young adult film franchises. 

By selling on a high note, Summit’s backers, a group that includes Rizvi Traverse Management and Participant Media, receive a substantial payback for their initial investment to go with the dividend they received in last year’s $750 million refinancing. 

Both companies have offices within blocks of one another in Santa Monica. Lionsgate boasts roughly 500 employees and Summit has about 160.

Lionsgate's stock fell 1.26 percent in after-hours trading to $8.60. 

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