While almost everyone is focused on the NEXT movie, they should actually be focused on the content library and what it would mean for deep pocketed acquirers.
Several US based companies including Viacom & CBS might be interested in moving their HQ's north (for tax purposes) as the American politico continue to fail at corporate tax reform. With a content library in excess of 16000 titles LGF would offer a plug and play to their existing business.
Foreign companies with an insatiable desire for content such as Vivendi, Alibaba, and Shanghai Media Group will also be looking LGF's way.
I've mentioned only a few of the potential acquirer's because there are many others you already know.
While continued growth as an independent company is great instant gratification with a buyout is better.
Target Price = $60
Everyone is focused on the NEXT movie because the next movie or future revenues are what determines the stock price. The library while worth money only makes up a fraction of the stock price and thus anyone buying LGF for the library would seriously be overpaying. Also most of the money from the library comes from licensing that content to service providers such as Netflix not ongoing IP. (LGF does not have a recurring franchise like Marvel, Star Trek, or James Bond). If the acquirer does not want to do that then the library is worth even less to them. If they already do that they won't be able to get much more then they are already getting for adding what is mostly older and less valuable titles. (Sure there are a few hundred good ones in there but most of that 16,000 is either bad or way past its prime of being valuable. It becomes just filler).
As far as the tax inversion thing, we will have to see but I don't think it is likely. From the Q&A of the conference call "And I would just add, we don't expect to pay U.S. federal taxes before we're well into fiscal '17". While that is great and all it implies that LGF will have to start paying US taxes so for a company to do an inversion for 3 years of tax savings is a big stretch.
Also, the threat of a boycott is real. There are talks of boycotting Burger King. Walgreens changed there mind after the backlash as well. All it takes is for the boycotters to decide to wait for video and not go to the theater and it would crush the acquirer. These are all things that would negatively affect someone buying LGF for an inversion.
Finally lets talk about price. You place a $60 target. I agree management would be stupid for selling for less than that as I am a big believer in the future growth of the company. However any of the major studios would have a serious backlash if they paid a 100% premium for LGF. This is why a buyout is not likely.
Boycotts don't work. You think the regular ignorant American sheepeople could give a damn or are aware of this? Hey, Canada is our Friend! I bet you over 75% of the american public have no idea about what is going on with BK. Over 95% never heard of Tim Horton's. This is the first time I heard about WAG, so there you go and I'm suppose to know better.
Chief Financial Officer and Principal Accounting Officer
Sure, David. It's a great quarter for free cash flow, as you noted. Not going to comment on the fact whether it's a record or not, but certainly, records are made to be broken. So we feel very good about that and also feel great about our ability to generate significant cash going forward. And we expect to continue converting a significant amount of our adjusted EBITDA out of free cash flow. And between our cash generation and the strength of balance sheet, this puts us in a great position to continue to drive shareholder value. And with regards to timing, just one thing to remember with regards to our business is that we've got a great deal of diversity across all of our businesses. And as we just reported, we have $1.3 billion of backlog, okay? This generally runs off and it's very high-margin business, generally runs off into our business over 18 to 24 months. In addition to that, we're generating $500 million a year in library, also with very healthy 35%-type margins. So across the board, we have a lot of things that go well beyond just whatever is the great content that we're putting in place every quarter, quarter-to-quarter, in and out throughout the year. But we have this underlying business that you -- continues to drive profits and free cash flow. So we feel very good about where we are.
Michael R. Burns - Vice Chairman
And David, it's Michael. On the library question, it's a scarce commodity at the moment. And -- but we look at everything. But remember we, as Jon mentioned, we have 16,000 titles. So unless we think a library purchases, a specific library will be complementary to what we already have, we're not going to pay up for it.
Opinion based on any fact? Funny thing is even 99% is a fraction of 100%. You just see things as you choose to.
ken - while everyone else is focused on the next movie I will continue to focus on cash flow and LGF's ability to increase revenue from a variety of sources (VOD, TV, partnerships, etc..) As LGF continues to broaden their revenue base the impact of the NEXT movie (which becomes part of their content library) will be less important. Depending on the terms of the Alibaba deal, we may see the impact that content can provide over the next 2 quarters.
Threat of a boycott over a tax inversion move is political theatre. Politicians who complain about tax inversion are the same ones who approved loop holes to negate the taxes they should be paying. In the end it is the small companies who get hurt.
As far as price - TSLA is currently trading at a price based on PROJECTED growth. There are many momo stocks that are totally disconnected from the reality of the moment. If solid revenues do kick in from the Alibaba deal, what do you think LGF is worth?
I've been in the stock for over 10 years and I do believe management has built a strong company that will be acquired within the next year simply because there are too many deep pocketed acquirers that are in need of content.
No offense there Ken but everything you are pretty much saying sounds like Ann Coulter speaking on fox news to force a debate with manufactured substance for effect. I hope you dont actually believe the bulk of what youre saying and rather have some kind of option position short term you are defending. haha Though I dont always agree you have sounded alot more rational. Peace