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Lionsgate Considered Starz Acquisition Before Stock Swap With John Malone 

Starz’s valuation is one of the factors that kept a deal from happening, and now all eyes are on John Malone’s next move, insiders tell TheWrap

During a February earnings call and at a Deutsche Bank media conference in March, Starz CEO Chris Albrecht described the pay-TV service and Lionsgate Entertainment as “kissing cousins.” If billionaire John Malone had his way, the two companies would have been even closer than that.

Malone recently became a shareholder in Lionsgate, swapping a portion of his stake in Starz for Lionsgate stock, as well as a seat on Lionsgate’s board of directors. But according to two individuals with knowledge of the matter, the transaction only occurred after acquisition talks between Starz and Lionsgate fizzled.

TheWrap has previously reported that Starz was seeking a buyer last fall. The company’s stock closed at $38 a share on Wednesday, a significant increase from when talks with Fox were reported on in September 2014. The individual with knowledge said that in addition to Fox, Starz had conversations with Viacom and Sony.

A Starz spokeswoman declined to comment.

According to the insiders, several factors kept a Lionsgate deal from happening, including Starz’s valuation.

Malone’s board appointment was announced in February, as part of a stock swap. The Liberty Media chairman received a 3.43 percent stake in Lionsgate in exchange for 4.5 percent of Starz. The deal gave Lionsgate a 14.5 percent voting stake in Starz. Malone is still the largest voting shareholder, following Liberty’s 2013 spin-off of Starz.

Starz, which reports earnings on Thursday, has more than 57 million subscribers when its Encore and Movieplex brands are included. Albrecht recently described the company as being in a “transition state.” It’s pushing ahead with an ambitious slate of original programming, which includes high-priced shows like “Black Sails” and “Outlander.” Albrecht’s goal is to have a stable of firmly established original shows by 2017, after its contract to air Disney movies in the U.S. expires.

With no ties to the traditional pay-TV world, Netflix has been growing rapidly. Since the Disney deal was announced in 2012, its U.S. subscriber base has risen 67 percent — from 25.1 million to a forecast of 42 million subscribers for its current second quarter.

HBO is also aggressively pursuing an online strategy. Its standalone streaming service, HBO Now, is currently available on Apple TV. Apple CEO Tim Cook, excited by the early returns, said this week “there’s a lot of traction in there.”

Although Lionsgate, which also owns part of the Epix pay-TV service, ultimately decided against acquiring Starz, it did welcome the opportunity to form a strategic alliance with Starz.

Addressing the stock swap on Starz’s quarterly earnings conference call Thursday, Albrecht said “we think there are potential opportunities for both companies.”  With the relationship still new, he said “for us it’s business as usual, but with (Lionsgate CEO) Jon Feltheimer on speed dial.”

RBC Capital Markets media analyst David Bank believes Lionsgate’s creative success with shows like “Mad Men” and “Orange Is the New Black” will be an important factor as the relationship grows.

“You need to be the platform that people want to take their content to,” Bank said in an interview. “I think if Lionsgate showed Starz its best ideas and shared some of its best content, that could make it a more attractive destination for other people’s content.”

Lionsgate did not respond to requests for comment.