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Lionsgate and Starz disclose talks about possible merger

Movie studio Lionsgate and premium cable channel Starz have officially acknowledged their courtship, again raising the possibility of a long-anticipated merger. 

In a Thursday regulatory filing, "Hunger Games" studio Lionsgate said it "intends to explore whether there is a potential mutually beneficial combination of the two companies." 

Speculation has long swirled about potential tie-ups between Starz and Lionsgate, one of the few publicly traded movie studios that is not part of a larger conglomerate. The Los Angeles Times reported in October that the companies had held high-level talks about the possibility of a deal for several months

The new disclosure comes about a year after media mogul John Malone acquired a minority stake in Lionsgate through a stock swap with Starz, which Malone also backs.

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An earlier version of this article attributed the Thursday regulatory filing to Starz. Lionsgate made the filing.  

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The filing suggests that the discussions are in early stages and that a deal is not certain to happen, but the companies are exploring a number of different deals that could benefit shareholders of both firms. 

Analysts have said a Lionsgate-Starz merger would mark a major step in Malone's ambition to create the next big media company and sweep up what he has called "free radicals" in the entertainment industry. 

A deal could also benefit the companies themselves, analysts say.

Lionsgate would get another outlet for its growing TV-production business, which already makes shows including “Orange Is the New Black” for Netflix and “Nashville” for ABC.

For Starz, the deal with Lionsgate could eventually give the channel access to the studio's big-budget productions, at a time when cable companies need content to compete with rivals. Further, Lionsgate is a Canadian-domiciled country, meaning Starz could benefit from tax advantages from a merger. 

Still, Cowen & Co. media analyst Doug Creutz expressed reservations about the potential deal, noting that Lionsgate already has plenty of outlets for selling its shows and movies. Additionally, Lionsgate's stock has declined since the final "Hunger Games" installment hit theaters in November.  

"We remain skeptical about the merits of such a merger," Creutz wrote in a research report. "At the same time, though, this announcement will likely re-ignite speculation ... about John Malone's plans for media consolidation via Lions Gate."

Lionsgate plans to announce third-quarter earnings Thursday after the close of the U.S. financial markets, followed by a conference call with analysts Friday morning. 

Starz shares rose $1.51, or 5%, to $30.70 in midday trading on Wall Street Thursday. Lionsgate's stock was little changed at $25.54 a share. 

Follow Ryan Faughnder on Twitter for more entertainment business coverage: @rfaughnder

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