ACQUISITION-PROPOSAL-OF-LIONSGATE-BY-NETFLIX

Throughout this project, the current state of the M&A market was analyzed, and the resources, capabilities, and opportunities, and threats of both Netflix and Lionsgate have been discussed. A valuation analysis was conducted on Lionsgate and Netflix to display where the companies stand in terms of financial health and future success. Cost reduction synergies were presented to show the potential benefits Netflix could receive in the event of acquiring Lionsgate. Furthermore, using the synergy value a bid range was calculated ($5.3 billion to $2 billion). Also, deal feasibility was measured and both shareholders profited in this win-win deal with Netflix’s shareholders reaping a 36% return, whereas Lionsgate’s shareholders benefit from the $1.1 billion premium at minimum. Finally, anti-takeover measures were considered and a cash for stock deal structure was put in place. Based on these results, acquiring Lionsgate seems to be a worthwhile investment, however, additional due diligence must take place. The 25% premium, for example, has room for negotiation as it believed that this could be too high of a premium to be paid. Conservative approaches were used to display that with the acquisition, substantial return is available, and should be taken advantage of. It is also recommended to not offer the max bid value for the acquisition, since this will equate to a NPV value of zero. Additional transaction expenses incurred in order to acquire Lionsgate will cause a loss. Furthermore, we also recommend a sensitivity analysis when calculating the synergy of the acquisition, in order to know the true drivers of the future cash flows. As the market moves into the second half of 2020, however, additional valuation analysis should take place, accounting for the possible effects that COVID-19 could have on both of these companies. Regardless, this team is recommending that Netflix should indeed offer a bid to acquire Lionsgate.