Weekly Update (STRZ, LION, LSYN)

April 26, 2025

Usually, I host my monthly update call on the first Friday of the month which would be next week. However, I’m going to be at the Berkshire Hathaway annual meeting and so I’m going to delay my monthly call by a week.

Mark your calendars for Friday May 9th at 1pm ET.

Next week, I will share the agenda.

One last reminder. If you are going to be in Omaha next week, I would love to meet up. Let me know!

I want to share one chart that caught my eye before moving on to the rest of my update.

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Amentum (NYSE: AMTM) has been on my radar for some time. The stock faced initial pressure following its spin-off from Jacobs’ Critical Mission Solutions and Cyber & Intelligence units in late 2024. Concerns about potential budget cuts from the Department of Government Efficiency (DOGE), led by Elon Musk, further weighed on investor sentiment.

My initial thoughts were that DOGE concerns were probably overblown, but it was hard to have a high conviction view given Elon Musk’s ability to do things that nobody else can do.

Alas, it looks like Musk is only human when it comes to reigning in government bureaucracy and waste. The chart above does a nice job of showing how the promised spending cuts have shrunk over time.

After I saw this chart, I immediately went to check Amentum’s stock price. But it’s already recovered to $22. Nonetheless, I will keep an eye on it in case we see another wave of volatility.

Weekly Update

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It’s basically a chat room where we discuss what’s going on in the special situation market:

Here are a few things we discussed this week:

1. Discussion of upcoming Lions Gate (LION) spin-off

2. Discussion of LSYN’s reverse split

3. PARA merger arbitrage with options discussion

Imminent Spin-offs

This week, Lions Gate Entertainment (LGF.A/LFG.B) approved the spin-off of Lions Gate Entertainment (LION).

Management anticipates closing the transaction after the market closes on May 5th, 2025. The first day of trading will be May 6th. Lionsgate Studios will continue to trade under the ticker symbol LION while the RemainCo will be rename Starz and will trade under the ticker STRZ.

LION will have 286MM shares outstanding while STRZ after the 1-15 reverse split, will have 17MM shares outstanding.

Lionsgate Studio has carved out a niche as a lean, franchise-focused independent studio that thrives in the mid-budget, IP-driven segment of the entertainment industry. It punches above its weight by targeting profitable genre films, franchise extensions, and strategic licensing — while avoiding the financial risk of mega-budget blockbusters.

Lionsgate appears to be trading at a discount to both Skydance (current valuation in Paramount deal) and other precedent transactions. Assuming LION deserves to trade inline with Skydance, it’s worth at least $11 per share. Independent studios are highly attractive acquisition targets for both larger cap tech (Amazon, Apple, Netflix) as well as private equity (Apollo, Blackstone,and KKR are active in the industry).

After its spin-off from Lions Gate Entertainment, I see 2 potential catalysts for the stock:

  1. Acquisition rumors.
    • There are many potential buyers, and I think the company would sell for the right price. Two activists will own significant stakes in LION and ensure that shareholder value is maximized.
  2. Index inclusion
    • Lionsgate Studios is not currently in the S&P 600 or any Russell indices given its limited float. However, the float issue will be resolved after the spin-off.
    • LION currently has a $2BN market cap (median market cap of S&P 600 and Russell 20000 companies is $1.7BN and $1.0BN, respectively) and would be a good candidate for inclusion.

Starz (RemainCo) looks attractive as well, especially at the current valuation. The Starz business has successfully navigate linear TV headwinds. Over the past 7 years, revenue has stayed roughly flat while linear revenue has declined from $1,294 to $487MM.

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Currently, 70% of revenue comes from OTT subscribers.

In terms of its valuation, Starz looks cheap.

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Starz is currently valued at $0.55 which works out to a market cap of $125MM and enterprise value of $625MM. As such, the stub is currently trading at 3.75x EBITDA.

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I think Starz is conservatively worth 5x which would correspond to a $1.50 share price.

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Before the transaction is finalized, Starz will proceed with a 1-15 reverse stock split.

Adjusting for this reverse stock split, my fair value estimate is $22.50.

Spin-off Links

How Lionsgate’s Spin-Off of Starz Will Unlock M&A Opportunities for Both | Analysis

  • Good article on M&A opportunities for both Starz and Lions Gate Studios

Lions Gate Studios Spin-off Deep Dive

  • I think the spin-off looks undervalued.

Curreen Capital Investor Letter

  • Curreen Capital owns several interesting spin-offs including Havas.

Recommendations Updates

  1. Libsyn (LSYN) proceeded with a 1 for 10,000 reverse split and shareholders who owned fewer than 10,000 shares were cashed out at a share price of $1.60. This is a disappointing development in a disappointing recommendation. Given that the majority of my subscribers own fewer than 10,000 shares, I’m officially closing this recommendation. But I will be happy to continue to follow the name for subscribers that own more than 10,000 shares. This development is good news for larger shareholders given the company is effectively buying back stock at a very attractive valuation (6.8x EBITDA and 0.7x revenue)


Spin-off Calendar

Upcoming Spin-off Calendar | Completed Spin-off Calendar

Current Positioning

(updated once a month)

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Hope you had a great week!

Rich

Disclaimer:

Rich Howe, owner of Stock Spin-off Investing (“SSOI”), currently is long IDT, MEDXF, GTX, AAF, IAC, UNTC, HGHAF, WDC, MAGN, HAVAS.  All expressions of opinion are subject to change without notice. This email is provided for informational purposes. Please do your own due diligence and consult with an investment adviser before buying any stock mentioned on www.stockspinoffinvesting.com.’