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Hunger Games Not Lions Gate's Only Blockbuster

But there are other benefits aside from the revenue generated by Summit Entertainment's movie library and upcoming releases.

Combined, Lions Gate and Summit Entertainment will grow to have a movie-making revenue prowess that will be a rival to Hollywood majors like Warner Bros (TWX), Sony/Columbia (SNE) and Universal. Meanwhile, Lions Gate will benefit from a better ability to distribute movies internationally for a higher fee.

"We expect continued strength in the US box office, as well as more favorable terms with exhibitors now that Lions Gate has acquired Summit to help drive theatrical revenues in future years. In addition, Lions Gate should also enjoy better leverage and profitability downstream as it increases the number of branded films it produces with its larger slate," wrote JPMorgan analyst Monica DiCenso of the acquisition in a Mar. 20 note initiating an "overweight" rating for Lions Gate and an $18 price target.

Summit Entertainment's ability to wrench out international revenue from its Twilight franchise could give Lions Gate upside as it monetizes its three part Hunger Games epic. Because revenue from Summit Entertainment's movies like Breaking Dawn will be used to pay down the loan that came with the acquisition it's still unclear how movie revenues will benefit Lions Gate shareholders.

Management said that earnings tied to Summit Entertainment's films will help Lions Gate pay down its loan in three years, some expect the deal to essentially pay for itself in a quicker fashion. "We expect the term loan to be fully repaid within three years, if not sooner," wrote DiCenso.

The acquisition was Lions Gate's first big move after surviving a multiyear battle with Carl Icahn, which included him sweeping up over 30% of the company's shares and launching =hostile takeover and merger campaigns.

In 2009, Lions Gate tried to buy MGM Studios only to be opposed by its large shareholder Carl Icahn, who also was a big holder of MGM debt. After quashing an early merger attempt, Icahn pushed for a 2010 tie-up as MGM sorted through sale and restructuring options. While talks were underway, Lions Gate sued Icahn and in Nov. 2010, MGM opted for a pre-packaged bankruptcy sale to Spyglass Entertainment.

Lions Gate then turned its focus to Summit Entertainment and rid itself of Icahn. In Aug. 2011, Icahn liquidated most of his over 30% stake in the Lions Gate as part of a settlement. Now the company's largest shareholder is MHR Fund Management, a fund run by a former Icahn partner that may see the company's strategy more favorably. "We believe that MHR is in agreement with the recent strategic decisions by management (shedding non-core assets, Summit acquisition) and does not present the same overhang on shares that Mr. Icahn's involvement in the company did," noted DiCenso of JPMorgan.

Lions Gate will look to have a big 2012 as it taps Twilight and Hunger Games viewers and tries to turn its first post-recession annual profit. Watch for the company's Summit Entertainment acquisition to be paid down quickly as it provides long-term benefits to the movie studio that may help it drive better than expected Hunger Games revenue.

Partnerships with Relativity Media, Roadside Attractions and a co-ownership of pay TV channel Epix are other recent Lions Gate deals that may also help revenue. Those deals bolster Lion's Gate's ability to distribute video on demand movies for Web services like Netflix (NFLX - Get Report) and cable providers like Comcast (TWX).

For more on Lions Gate Entertainment, see top rated media stocks and why moviegoers are starving for The Hunger Games.

-- Written by Antoine Gara in New York
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