Lionsgate Finds Vampire Teeth With Summit Buy

NEW YORK ( TheStreet) -- Vampire-hungry movie maker Lionsgate Films ( LGF) has bought Summit Entertainment, the producer of the "Twilight" series of movies, for $412.5 million in cash and stock, finalizing what was a long-rumored deal.

For Lionsgate Films, which makes the popular "Mad Men" television show and is producing the teen-focused Hunger Games trilogy of movies, the deal gives it the rights to produce the last "Twilight" installment, in addition to library rights to its previous four blockbusters, which netted $2.5 billion in global box office receipts.

"We are uniting two powerful entertainment brands, bringing together two world-class feature film franchises to establish a commanding position in the young adult market," said Lions Gate's CEO Jon Feltheimer and Vice Chairman Michael Burns in a statement.

The majority of the purchase will be paid for in cash on Summit's balance sheet, with $55 million also coming from Lionsgate coffers and $50 million in its stock. Lionsgate will also issue $20 million in shares and refinance Summit Entertainment's $500 million debt facility at the close of the purchase.

For Lionsgate Films, Summit Entertainment's multi-billion dollar Twilight Saga of vampire movies may help it return to profitability, even as movie attendance and DVD sales contracted in 2011. Lionsgate expects the deal will create cost savings and add to earnings when its fiscal year opens in April.

While Lionsgate Films survived a multiyear battle with activist investor Carl Icahn in 2011, which included him sweeping up over 30% of the company's shares and pushing for and against its merger with MGM Studios in addition to multiple hostile takeover attempts and lawsuits, it's struggling to turn a profit.

In its recent quarter, Lionsgate Films lost $24.5 million. The Santa Monica, Calif.-based company has lost money in every year since 2007.

Lionsgate Films shares fell 1.26% to $8.60 in Friday trading. Its shares gained nearly 25% in 2011.

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Summit Entertainment was co-founded in 2007 by Robert Friedman, a former Paramount Entertainment executive. With the help of a $1 billion financing arrangement from Merrill Lynch, the company was able to acquire the rights to the film adaptations of the "Twilight" vampire saga of books written by Stephanie Meyer. The movie series has netted $2.5 billion in global sales, with Lionsgate films now set to produce the fifth movie, to be released in 2012.

Summit Entertainment, which produced the Oscar winning "Hurt Locker," was rumored to receive interest from Lionsgate in November had also been rumored get interest from hedge fund Colony Capital, owner of Miramax films.

Meanwhile, Lionsgate has seen recent success with its cable T.V. franchise Mad Men and is now trying to crack into the seemingly perennially lucrative teenage book-to-movie market with its upcoming release of Hunger Games, the first in a highly anticipated trilogy due in March.

Lionsgate was founded in Vancouver in 1997 and had its first box-office success in the film adaptation of the 1980s cult Wall Street lunatic novel American Psycho. Recently, its entered partnerships with Relativity Media, Roadside Attractions and is a co-owner of pay TV channel Epix, while also cutting movie distribution packages with Universal Pictures. Lionsgate's highest critical acclaim has come from its Emmy-winning show "Mad Men," and it's developed other successful franchises like Tyler Perry films.

In 2009, Lionsgate tried to buy MGM Studios as it was teetering toward bankruptcy, only to be opposed by its large shareholder Carl Icahn, who also was a big holder of MGM debt.

After increasing stakes in both companies and quashing an early merger attempt, Icahn then reversed course and pushed for a 2010 tie-up as MGM sorted through sale and restructuring options. While talks were underway, Lionsgate sued Icahn and in Nov. 2010, MGM opted for a pre-packaged bankruptcy sale to Spyglass Entertainment.

Lionsgate then turned its focus to Summit Entertainment and rid itself of Icahn. In Aug. 2011, Icahn liquidated his over 30% stake in the Lionsgate as part of a settlement.

With Summit Entertainment's highly popular franchise, Lionsgate will look to have a big 2012 tapping teenage "Twilight" and "Hunger Games" viewers. No details were released on any changes to management structures after the merger is completed.

-- Written by Antoine Gara in New York