Malone's Starz Surges on Renewed Prospects of AMC Deal

  • Starz shares advance 4.3%, putting stock up 36% this year
  • Preliminary talks could spark TV network consolidation

Starz, the premium cable network that counts billionaire John Malone as its biggest shareholder, surged on renewed prospects for a combination with AMC Networks Inc.

Starz, based in Englewood, Colorado, advanced 4.3 percent to $40.44 at the close in New York, putting the stock up 36 percent this year. AMC Networks, the cable-TV company that owns shows including “The Walking Dead,” is in renewed talks to acquire Starz, people with knowledge of the matter told Bloomberg News on Tuesday.

The preliminary discussions may not result in an acquisition, according to the people, who asked not to be named because the information is private. Malone is the largest individual investor in Starz, according to company filings.

“I do think that there’s a good business rationale for different companies coming together,” Starz Chief Executive Chris Albrecht said in a CNBC interview Wednesday. “When you put two good companies together that have complementary and supplementary businesses and have good management teams and are both executing well on their own, I think that’s an opportunity.”

An AMC-Starz deal would put Malone, who has driven cable and telephone industry consolidation in the past, in the thick of the action as film and TV companies weigh mergers. A combined AMC Networks and Starz would gain leverage in negotiating fees from pay-TV carriers, which have already paired off to lower costs as customers defect to online players like Netflix Inc.

Starz, which owns the Starz and Encore premium movie channels, couldn’t come to terms last year with potential buyers, including New York-based AMC Networks, because of differences over valuation, people with knowledge of the matter said last December. Starz’s enterprise value has increased since then to more than $5 billion from about $4 billion, partly on speculation that Lions Gate Entertainment Corp. may buy the Englewood, Colorado-based company.

“They probably ultimately need to combine with others at least from a bundler point of view, if not from an ownership point of view,” Malone said of Starz in a Sept. 11 interview with Bloomberg. “They could fit well and gain in terms of market power and in terms of quality of their offerings by combination with a number of other enterprises.”

AMC Networks closed little changed at $74.13. Lions Gate rose 2 percent to $39.27.

This year, Malone obtained a 3.4 percent stake in Lions Gate, the independent film and TV studio run from Santa Monica, California, in exchange for a stake in Starz. He is intrigued by Lions Gate’s official domicile in Canada, where corporate taxes are lower, one of the people said.

“John sees the big media companies up top and then what he calls the free radicals, companies like Starz, Lions Gate, AMC,” Albrecht said Wednesday. “John, who is a dealmaker, a visionary, he can see the benefits of aligning some of the companies more closely. Whether that’s a JV on some business or whether that’s a complete merger, that remains to be seen. I do think that John believes that putting these companies together could really result in enormous value creation.”

Any deal involving AMC Networks would require the consent of the Dolan family, who control voting power at the company, according to filings. AMC Networks was spun off in 2011 from Cablevision Systems Corp., which the Dolans also control.

“I obviously am a fan of Lions Gate,” said Malone, who added it would be a “terrific, synergistic fit” to see Starz combine with Lions Gate. “But that’s not under my control. That’s up to Lions Gate and an independent board at Starz,” he said.

Malone’s Charter Communications Inc. agreed in May to acquire Time Warner Cable Inc. in a transaction valued at $79.2 billion, including debt. In July, AT&T Inc. completed its purchase of DirecTV, the largest U.S. satellite-TV provider.

AMC Networks has long been viewed as a potential acquisition target for media companies because of its limited scale, owning the AMC channel, IFC, SundanceTV, WE TV and half of BBC America. A deal for Starz would give the company added clout in negotiations with pay-TV providers, many of which are experimenting with skinny bundles that exclude less popular channels. AMC Networks doesn’t own a premium movie channel. CBS Corp. and Time Warner Inc. own Showtime and HBO, respectively.

AMC Networks acquired 49.9 percent of BBC America, home to “Doctor Who” and “Orphan Black,” in October 2014.

Starz has been on a roll with the popularity of shows like “Outlander” and “Power.” The company passed Showtime in subscribers at the end of last year, according to a June statement.

Starz would also give AMC Networks channels that are less beholden to the cable systems and their shrinking ranks of video subscribers. The commercial-free HBO and Showtime have created online-only offerings for customers who don’t want costly pay-TV subscriptions.

AMC Networks’ $5.3 billion market valuation has been aided by a run of hit programs, both with audiences and with critics. “Fear The Walking Dead,” a spinoff of its hit “The Walking Dead,” drew the largest-ever audience for a new cable series with 10.1 million viewers last month.

Still, AMC Networks has had to weather the conclusion of several of its biggest series in the last two years, including “Mad Men” and “Breaking Bad,” and its subscribers have shrunk 5.2 percent to 93.8 million over that time, according to Nielsen data cited by Bloomberg Intelligence.

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