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What's happening: Shares of Lions Gate Entertainment Corp. (NYSE:LGF-A) were up as much as 10.7% on Wednesday after the company announced it has entered into a stock exchange agreement with affiliates of media magnate John Malone. Under the agreement, Lions Gate will exchange newly issued shares representing roughly 3.43% of its outstanding common stock for a portion of the Starz (NASDAQ:STRZA) common stock held by Malone and his affiliates. Specifically, the latter will represent around 4.51% of all Starz common stock outstanding, and 14.5% of the total voting power of Starz common stock.
In addition, Malone will remain Starz's largest shareholder with a roughly 6.1% equity interest and 32.1% of its total voting power, and will join Lions Gate's board.
Why it's happening: Keeping in mind Lions Gate already has a robust television production segment that enjoyed record output last quarter, this deal seems to set the stage for a much larger partnership or a possible merger further down the road. Lions Gate considered buying Starz late last year, but sources at the time said the talks were still in early stages and included options such as this asset swap or a deeper partnership between the two companies.
Lions Gate CEO John Feltheimer noted, "We see tremendous value in Starz as well as the potential to explore a broad range of strategic initiatives in the future." In the end, if Lions Gate and Starz can capitalize on this deal to ultimately drive additional shareholder value, so much the better.
Steve Symington has no position in any stocks mentioned. The Motley Fool recommends Lions Gate Entertainment. The Motley Fool owns shares of Lions Gate Entertainment. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.