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Lions Gate acquires Summit Entertainment for $412.5 million

TwilightBreakingDawnBringing Hollywood's two biggest independent film studios and the blockbuster young adult franchises "Twilight" and "The Hunger Games" into one powerful entity, Lions Gate Entertainment has agreed to acquire Summit Entertainment for $412.5 million in cash and stock.

The two Santa Monica-based companies have engaged in on-and-off merger talks since late 2008 as Lions Gate has sought to bolster its library of film and TV properties and Summit's investors have tried to find a way to cash in on the lightning-in-a-bottle success of its "Twilight" movie series, which has grossed $2.5 billion worldwide over four films.

The acquisition will provide a windfall to Summit's investors, among them Ebay co-founder Jeff Skoll's film company Participant Media and private equity fund operator Suhail Rizvi's Rizvi Traverse Management. Summit's investors previously received a $200-million dividend as part of a recapitalization in early 2011.

However, they have been eager to find a buyer for the studio before the final "Twilight" movie is released later this year, according to people familiar with the matter but not authorized to speak publicly.

Outside of "Twilight," however, Summit has failed to find much success on the big screen, with a list of flops that include the Brendan Fraser comedy "Furry Vengeance," Mel Gibson's "The Beaver" and "A Better Life," a well-reviewed drama about Mexican immigrants living in Los Angeles. The disappointments far outweighed a few modest successes such as the action movie "Red."

The deal is a coup for Lions Gate Chief Executive Jon Feltheimer and Vice Chairman Michael Burns, who have over the last decade made several acquisitions to bolster the size of their company and better compete with larger studios in the increasingly global entertainment business.

Though employment contracts have not yet been finalized for Summit co-chairmen Rob Friedman and Patrick Wachsberger, the pair are expected to become heads of Lions Gate's motion picture group, according to people familiar with the matter but not authorized to speak publicly.

Lions Gate's current film group president Joe Drake, who was already under pressure after a weak showing at the box office over the last year, is expected to depart, those people said. However, in an interview, Feltheimer said Drake will continue to shepherd "The Hunger Games" through to its March 23 release.

Layoffs are expected at both companies as they merge redundant departments in their film operations such as marketing, production and distribution. Feltheimer declined to specify how many there would be. Lions Gate has approximately 500 employees and Summit has about 160.

The combined company will continue to release movies under the Summit label.

2012 could be a huge year at the box office for the combined company, with "The Twilight Saga: Breaking Dawn Part 2" coming in November and the first of four planned "Hunger Games" movies, based on hit young adult literary series, coming in two months.

The latter is Lions Gate's biggest movie bet ever, with a production budget of nearly $100 million, and an explicit attempt to try and duplicate the success of "Twilight." The combined studio will undoubtedly seek to use the two properties to promote each other.

The combination of the two studios comes at a time of ongoing consolidation in the economically challenged entertainment sector that has seen the number of studios making and releasing movies shrink amid falling DVD sales and continued efforts to transition to digital distribution.

In an announcement issued Friday, Lions Gate said the majority of the purchase price would be funded by cash on hand at Summit. The rest will be paid for by $55 million of Lions Gate's cash reserves, $45 million from new debt issued by Lions Gate, and another $20 million of cash or stock that Lions Gate must issue within 60 days.

Summit comes into the deal with about $200 million in net debt, which is secured by that studio's existing assets and will not be assumed by Lions Gate.

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-- Ben Fritz

Photo: Robert Pattinson and Kristin Stewart in "The Twilight Saga: Breaking Dawn Part 1." Credit: Andrew Cooper / Summit Entertainment

 
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