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Lionsgate Stock Rises on Stock Upgrade Ahead of Planned Studio Spinoff

Shares of Lionsgate are trading higher after Barrington Research issued an upgrade to overweight and set a price target of $12 for the Hollywood studio.

Analyst James Goss in a Monday investors note said Lionsgate after many delays unveiling plans to spin off its film and TV studio business from Starz via a SPAC deal promises greater shareholder value for the studio and its TV streaming assets after the Hollywood major considered strategic alternatives.

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Goss argued the SPAC deal, expected to close in April, heralds “a publicly traded subset of the studio business that would provide both some public affirmation of value and create a focus on the studio identity, while also drawing somewhat of a line in the sand in terms of transaction timing.”

Also Monday, Lionsgate CEO Jon Feltheimer in an SEC filing disclosed he picked up 100,000 shares in the studio. Feltheimer acquired 50,000 class A share at an average price of $9.12, and another 50,000 class B shares at an average price of $8.56.

Stock in Lionsgate rose by 28 cents, or 3 percent, to $9.45 in pre-market trading on Monday. Lionsgate’s proposed SPAC-style transaction to sell a stake in the studio to publicly trade under the LION ticker follows nearly two years of strategic talks to spin off its studio division or Starz streaming platform.

Barrington’s Goss said Lionsgate has completed recent smaller acquisitions, including buying the Entertainment One film and TV business from Hasbro, “that should enhance the studio business and will be the primary value driver on which we plan to focus our attention. For these reasons, we are upgrading our rating to outperform.”

And he sees the SPAC transaction allowing Lionsgate to “ increase focus on alternatives for Starz.” A full separation from Starz is expected after Lionsgate establishes a new value for its studio business with the SPAC-style spin.

The Hunger Games and John Wick studio is betting that creating two stand-alone companies by launching a new public company out of a current public company can help value the Starz and studio assets separately and more generously than the current consolidated valuation.

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