EXCLUSIVE: The hard-fought Lionsgate purchase of Summit Entertainment now looks about to consummate with insiders telling me it’s a $700 million deal consisting of $400M in equity plus an assumption of $300 million of debt. Most of that debt will be in the form of a bank loan by JP Morgan to Lionsgate. Several estimates have valued Summit at between $350 million and $450 million so to those familiar with Summit’s finances who don’t think my numbers add up, here’s why: Although the gross debt on Summit’s balance sheet is $500M, part of it gets wiped out by cash, and part of the cash moves with the company. Bankers and attorneys have been hovering all week around Summit, best known for its billions-dollar success with its Twilight Saga series, as the merger talks between two of Hollywood’s largest independent movie studios morphed into takeover talks and went down to the wire, while media have been writing that the Lionsgate-Summit deal either was imminent or blew up.
But let me explain why this deal is very bad news for Hollywood: my insiders tell me it will mean the end of Summit as a buyer. First, behind the scenes, Lionsgate toppers Jon Feltheimer and Michael Burns have no interest in continuing to let Summit make movies. But also in recent days the negotiations between the two indie studios became so rough and tumble that insiders now feel there is no possible way that Summit chiefs Patrick Wachsberger and Rob Friedman and the Lionsgate pair could ever work together far beyond the obvious transition period. “It’s gotten very rough recently. Burns and Feltheimer rolled over these guys hard. The odds of Rob and Patrick staying on is nil. I don’t give them 30 days.” [UPDATE: Other sources claim the two Summit chiefs plan to work "within the Lionsgate structure".]
What a shame for Summit that’s had so much success. It’s hard to believe it ended up a takeover target since it was sitting on so much cash that it had hired an investment bank to help it expand by acquiring other companies and even getting into television. But none of that came to pass after some initial overtures. Wachsberger and Friedman owned 30% of privately owned Summit and investors owned the other share, including Rizvi Traverse Management which had a lions share, and everyone was eager to see a payday. The common belief is that Summit was struck by lightning with the success of the Twilight saga franchise but that”s now coming to an end with Breaking Dawn Part 2 debuting in November. So this was the right time for everyone connected with Summit to score a windfall. For publicly traded Lionsgate this deal for Summit gives it cash as a badly needed hedge against the forthcoming The Hunger Games movie releasing in 2012 based on the bestselling book. If Hunger Games doesn’t turn into the hoped-for Twilight-huge franchis, Lionsgate is going to be in even worse shape than it was in 2011 when its debt stood at roughly $590M at the end of September, according to the company’s filings, and Lionsgate’s box-office haul was $332M, down -64% from 2010. MORE
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