Lionsgate, STX Deal Falls Through, Indie Studio Seeks to Close Najafi Deal (Exclusive)

Lionsgate submitted a best and final offer in recent days that was well under the $173 million offered late last year by The Najafi Companies

robert simonds eros stx
STX Entertainment founder Robert Simonds (Getty Images

Sharon Waxman

Sharon Waxman On the Business of Entertainment

The founder and editor of TheWrap’s take on life on the left coast, high culture, low culture and the business of entertainment and media. Waxman writes frequently on the inside doings of Hollywood, and is is also the author of two books, Rebels on the Back Lot and Loot

Lionsgate will not be acquiring STX Entertainment, leaving the cash-strapped indie studio to close its deal with The Najafi Companies or find financing to cover its outstanding $150 million debt, TheWrap has learned. 

Lionsgate submitted a best and final offer in recent days that was well under the $173 million offered late last year by The Najafi Companies, an individual close to the negotiations told TheWrap, adding that the bid was rejected by STX founder Robert Simonds and his top executives.

That leaves the Phoenix-based Najafi — in partnership with Tom Staggs and Kevin Mayer’s Forest Road SPAC — to close an acquisition that was announced in December. That deal allowed a 45-day window in which Lionsgate explored making its own bid for the studio behind modest box office hits like “Hustlers,” “Bad Moms” and “Greenland.” STX must also continue negotiating with its primary lender, JP Morgan, to extend terms that were supposed to be due in February. 

A spokesperson for Lionsgate had no comment, nor did a spokesperson for STX or Najafi Companies. 

STX has been struggling with a cash crisis for several years, even after merging with the publicly traded Indian streaming company Eros in 2020. That merger followed a record $319 million box office in 2019 for the studio, fueled by hits like Jennifer Lopez’s “Hustlers” and “The Upside” (as well as flops like “Ugly Dolls,” which grossed just $20 million domestically).

But ErosSTX was hit hard by the pandemic amid production delays and a lack of interest in the few films it did manage to release. The company grossed just $8.8 million from four films in 2021, with $6 million coming from the overseas gross of the true story Guantanamo Bay drama “The Mauritanian.” And it recently sold off two of its completed films, the Kristen Bell comedy “Queenpins” and the Chris Pine-Ben Foster thriller “The Contractor,” to Paramount.

ErosSTX has not filed any 2021 financial statement with the SEC, but received an extension to do so by May 31, according to an SEC filing. The public company was also re-listed on the Nasdaq on Feb. 21 after the stock climbed back up from falling below the $1 threshold required for listing.

The company’s stock price has plunged 90% in the past year, from $39.20 per share a year ago to trade at $3.80 per share on Thursday.

A second individual close to the talks said a large group of executives from STX, Najafi and Forest Road had dinner at Brentwood’s popular Toscana restaurant on Wednesday night after a day of deal work. This insider said that all options were still open for STX’s next moves.

But the problem for STX is that there are almost no other strategic buyers on the horizon. The 8-year-old company has a small content library and has sustained huge losses during the pandemic, as production has been continually interrupted. 

Multiple individuals who have looked at STX as a potential acquisition told TheWrap that STX’s overhead is currently north of $70 million per year, which many deemed unsustainable. The insider with knowledge of the Lionsgate negotiations said that the acquisition was not a “must-have” for the mini-major, and that STX’s overhead was hard to justify.