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Why is Starz (STRZA) Stock Surging 11% Today?

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On Thursday, Lions Gate officially announced their agreement to buy Starz in a deal of $4.4B in cash and stock. The deal comes after significant speculation on the topic. As a result of the announcement, STRZA stock has risen 11.3% to $31.42 as of 11:38 AM EDT.

As per their official statement, both companies believe the acquisition will allow for increased content creation capabilities. It will combine “a 16,000-title film and television library, a feature film business that has generated over $7B at the global box office over four years, and operation of or investment in 30 channel platforms around the world.”

Under the agreement, LGF common stock will be reclassified into 0.5 voting and 0.5 newly created non-voting shares. Starz shareholders are currently divided amongst Series A and Series B (STRZB) common stock. STRZA shareholders will receive $18 in cash as well as 0.6784 of LGF non-voting stock per share currently owned, whereas STRZB shareholders will receive $7.26 in cash and 0.6321 in both voting and non-voting stock per share currently owned.

Closing on the deal is expected to occur by the end of the year. The deal is meant to breathe new life into LGF, which has experienced a stock price decrease of 42% in the past year and a bearish Q2 box office outlook.

In the last 60 days, there has been a 67% agreement amongst analysts in upward estimate revisions for STRZA this fiscal quarter as well as 100% upward revisions for next quarter. As our team points out, Starz TV and Starz encore channels have 24M and 32.4M subscribers, respectively.

In our previous report on LGF’s volatility, we highlighted the fact that television and international revenues helped to cushion otherwise disappointing theater results. This new acquisition could do more to boost television revenue and provide some more support against lackluster ticket sales in the future.

This deal could shift outlook moving forward, but for now Lions Gate sits at a Zacks Rank #4 (Sell), while Starz sits at a Zacks Rank #3 (Hold). 

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