Analyzing the Conditions of the Starz-Lions Gate Merger?

Basics of the transaction

As we discussed previously in this series, Starz (STRZA) and Lions Gate are merging in a cash and stock transaction. The companies are guiding to close by the end of 2016. Provided that there aren’t any antitrust issues, the gating item should be the SEC’s (U.S. Securities and Exchange Commission) approval of the proxy statement. Given the complicated nature of this transaction, the SEC review could go longer than normal. If the deal doesn’t have antitrust issues and the SEC quickly reviews and approves the proxy statement, the deal should be able to close in the normal four or five-month timeline for uncomplicated deals with a shareholder vote.

Analyzing the Conditions of the Starz-Lions Gate Merger?

Merger conditions 

  • Starz shareholder vote
  • Lions Gate shareholder vote
  • Lions Gate’s filing of a premerger notification in accordance with the Hart-Scott-Rodino Act
  • Lions Gate share exchange
  • German Foreign Cartel Office
  • Federal Communications Commission

Non-solicitation agreement

Starz agreed to a non-solicitation agreement with a fiduciary out. This means that during the pendency of the merger, Starz is permitted to shop itself or contact other potential buyers. That said, if Starz receives an unsolicited approach in writing, which could lead to a superior offer, it’s permitted to discuss a deal with the potential buyer in accordance with its fiduciary duty to maximize shareholder value. If Starz accepts a higher offer, it will owe Lions Gate a termination fee of $150 million. Starz has been in play for a while. CNBC reported there was a process run, so the chance of a competing bid should be relatively low.

Other merger arbitrage resources

For a primer on risk arbitrage investing, read Merger arbitrage must-knows: A key guide for investors.