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Posted 04:08 PM EST, Oct-27-2003
Lions Gate finally bags Artisan by Peter Lauria
Updated 07:12 PM EST, Oct-27-2003
It took two years, but Lions Gate Entertainment Corp. finally caught its prey, announcing Monday, Oct. 27, a deal to acquire Artisan Entertainment valued at a minimum of $220 million.
Under the deal's terms, Toronto-based Lions Gate will pay $160 million in cash and assume roughly $60 million of Artisan debt for an enterprise value of $220 million. The deal also provides for additional cash payments to Artisan's shareholders based on the theatrical performance of such film releases as "Dirty Dancing: Havana Nights" and "The Punisher" next year. A source close to the negotiations estimates an additional $40 million in equity for Artisan shareholders is possible.
Sources said Lions Gate will fund the deal with the $73 million in proceeds generated from a recent stock offering and by drawing down a $350 million revolving credit facility J.P. Morgan Chase & Co. has set up for the combined company. SG Cowen Securities lead-managed the stock offering, with Natexis Bleichroeder and Thomas Weisel Partners serving as co-managers. J.P. Morgan is currently syndicating the credit facility, the source said.
Artisan's investors — among them controlling shareholder The Audax Group (with a 26% stake); Chicago-based Richland, Gordon & Co. (19%); Canada's CTV Inc. (20%); Allen & Co. (5%); and management (30%) — will see a return on investment of between 2 and 2.5 times. Those who participated in Audax's 1999 recapitalization of Artisan, according to a second source, stand to reap $40 million in profit between them from Monday's deal.
From a financial perspective, Lions Gate looks a lot like Artisan did before CEO Amir Malin engineered a turnaround that prompted Artisan's investors to conduct a second auction this March. Artisan first tested the waters about a sale in 2000, after rejecting a $250 million buyout offer from Barry Diller's USA Networks Inc. But nobody came near meeting its $300 million floor, thereby forcing a retreat.
At the time of the first auction, Artisan — best known as the company behind "The Blair Witch Project" — featured total debt of $265 million and Ebitda of around $32 million. When the Lions Gate deal closes, some time before year's end, Artisan will carry only $60 million in debt and have Ebitda in the $45 million to $50 million range. Lions Gate, by contrast, currently has debt of about $190 million and analysts project under $30 million in Ebitda this year.
Still, the deal is expected to be "enormously deleveraging" for Lions Gate, said another source. According to this person, Lions Gate's total debt to trailing 12-month Ebitda will decline to 5.2 times from 11.7 times.
Just under half of Artisan's Ebitda comes from its 3,500-title film library, second in size only to Metro-Goldwyn-Mayer Inc.'s collection. The library's steady financial generation provides an effective counter to the hit-and-miss economics of film production. And its exactly what Lions Gate needs to offset its production-heavy operation. Sources said it was this strategic fit that gave Lions Gate the edge over a similar bid submitted by former USA Films chairman Scott Greenstein and his backers at private equity firm Thomas H. Lee Partners.
AI
