Lionsgate, the movie studio home of Tyler Perry and “torture porn” horror franchises “Saw” and “Hostel,” intends to submit an “aggressive” offer for Miramax even as it advances to the second round of bidding for MGM, according to sources inside or close to Lionsgate.
While Lionsgate isn’t considered a serious contender for Metro-Goldwyn-Mayer because it lacks the financial wherewithal of richer suitors like Time Warner, it can not only afford Miramax — even at the rumored $700 million price tag — but could also have the field to itself as rivals pursue the bigger fish.
“MGM might be too much of a mouthful for them, but Miramax is much more bite-sized,” said one source of Lionsgate’s dual pursuit.
A Lionsgate representative did not return calls for comment.
Disney shuttered Miramax last month. The company, with its library of mostly tiny independent films like “Clerks,” no longer fits with owner Disney’s strategy of producing big event movies, but it’s a perfect match with Lionsgate’s core competency of low-to-mid-budget genre releases.
“[Lionsgate] certainly likes the MGM library, but with no international distribution they aren’t going to be able to get the same kind of value out of the ‘Bond’ or ‘Hobbit’ franchises than someone else,” said a second source close to the studio.
There are other reasons buying Miramax instead of MGM makes more sense for Lionsgate.
The studio last year bought into not one, but two cable channels: TV Guide Network and Epix. Lionsgate plans to transform TV Guide Network from a listings channel into a general entertainment network and could leverage Miramax’s 600-plus titles, which also include “Chicago” and “Pulp Fiction.”
Miramax movies could also help differentiate Epix, which is jointly owned by Lionsgate, MGM and Viacom’s Paramount Pictures, from rivals like Showtime, giving it exclusive content that could entice distributors and subscribers.
Given the historical rivalry between Lionsgate and Miramax’s founders, Weinstein brothers Harvey and Bob, buying Miramax would also be a triumph for Lionsgate CEO Jon Feltheimer.
But most important, Miramax is a much cleaner deal than MGM. Lionsgate need only negotiate with Disney to buy Miramax; attempting to buy MGM requires dealing with no fewer than five owners, more than 100 creditors, a potential pre-packaged bankruptcy and a host of other constituencies.
Though Lionsgate can afford $700 million, it’s not likely to bid that much at first. As much as Lionsgate would like Miramax, it also has activist investor Carl Icahn, who on Friday increased his stake in the studio to 18 percent, closely watching its every move.
Sources said Lionsgate would seek to take advantage of Miramax’s damaged brand, the declining outlook for DVD and pay TV deals, and the fact that distribution rights are tied up by previous deals to drive the price down.
Sources suggested Lionsgate could initially bid as high as $500 million to $600 million, five times Miramax’s roughly $100 million in annual cash flow and about twice its $300 million in revenue, to keep other bidders from snatching the asset out from under it.
Based on 2010 estimates, Lionsgate could afford a bid in that range. Cowen & Co. projects annual revenue of $1.5 billion, operating income of $23.4 million, and adjusted EBITDA of $114 million. The company has about $143 million in cash and cash equivalents, a market capitalization of $604 million and total debt of around $520 million. Lionsgate shares closed trading Friday up 6 percent, or 29 cents, to $5.14 per share.