Shahid Khan talks about Lions Gate acquiring Summit

Lions Gate Entertainment, producer of the Mad Men and Weeds television shows, is closing in on a $400m deal to buy Summit Entertainment, the film company behind the Twilight movies, in the latest round of consolidation to sweep Hollywood.

The purchase, likely to be financed by debt and cash rather than shares, will mean a hefty payday for Rob Friedman and Patrick Wachsberger, the two executives who relaunched Summit in 2007 as a “full service” film group able to produce as well as distribute films. Summit’s senior management owns 30 per cent of the company, alongside other investors including Rizvi Traverse, the private equity firm, and Emilio Diez Barroso, from the family behind the Televisa media group.

However, several Summit investors had pushed for a sale to capitalise on the success of the Twilight movies. The hit films allowed Summit to pay its investors a $200m dividend last year after the company had completed a $750m refinancing.

Summit has had less luck with its other films, which include Red and Source Code. It remains one of Hollywood’s only independent production and distribution entities but with the industry suffering from declining home entertainment sales, studios are facing pressure to release fewer movies, consolidate or cut costs.

Lions Gate and Summit declined to comment but people familiar with the situation said a deal was imminent, although there was still a chance the talks could break down. The sale talks were first reported on the Deadline.com site.

Summit has about $300m of debt following its refinancing but people close to the talks said this would not be absorbed by Lions Gate. The off-balance sheet debt would continue to be held by Summit, which would operate as a subsidiary of Lions Gate, they said.

Summit had also attracted interest from Colony Capital, the private equity firm that recently acquired Miramax from Walt Disney.

“If you look at Summit and Lions Gate they focus on exactly the same young demographic so there is lots of synergy there,” said Shahid Khan, chairman of Mediamorph, a technology services firm. Lions Gate would be keen to take advantage of Summit’s intellectual property across other digital platforms and exploit them in games and apps, as Walt Disney and Sony Pictures did with their film and television properties, he added.