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Why Shares of Starz Slumped Today

By Timothy Green - Feb 5, 2016 at 12:44PM

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Weak earnings from Lions Gate, a potential acquirer, sent shares of the premium TV operator lower.

What: Shares of Starz (STRZA), which operates premium pay TV networks, slumped on Friday. While no Starz-specific news seems to be driving the decline, the stock spiked on Thursday due to a report that Lions Gate (LGF-A 0.53%) was once again interested in acquiring the company. The drop on Friday reversed that gain. At 11:30 a.m. ET, shares of Starz were down about 15%, while shares of Lions Gate had tumbled 32% on weak earnings.

So what: Lions Gate, which is best known for The Hunger Games, The Twilight Saga, and Divergent, was interested in acquiring Starz back in 2014. The deal fell apart due to concerns over valuation and the future of Starz's programming. Netflix acquired rights to Disney's movies starting in 2016, depriving Starz of a major source of high-value content.

Shares of Starz now trade at roughly the same level as they did during much of 2014, following a steep decline over the past six months. Lions Gate has also seen its stock tumble, with shares down more than 50% over the past six months. Shares of Lions Gate plummeted more than 30% on Friday after the company reported weak earnings, and with Starz now an acquisition target, the stock is being hit hard as well.

Now what: Starz is set to report its own results on Feb. 25. The last two earnings reports from Starz have been negative, with the company missing estimates for both revenue and earnings. The drop in the stock price today doesn't seem to be related to anything specific to Starz, with the decline likely being driven by Lions Gate's poor results and, possibly, the optimism of a deal taking place fading away.

Timothy Green has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Lions Gate Entertainment, Netflix, and Walt Disney. The Motley Fool recommends Starz. 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.

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