Analysts Praise Potential $700 Million Transaction Between Lions Gate, Summit Film Studios

Wall Street analysts on Monday praised Lions Gate Entertainment's reported decision to buy out rival Summit Entertainment for $700 million.

Reports surfaced Sunday that Lions Gate film studio is close to purchasing rival Summit for approximately $400 million in a cash-and-stock transaction. Lions Gate would also assume Summit's $300 million of debt, which analysts believe will be made up quickly with the final Twilight movie release in November.

The deal is expected to be finalized this week, two people familiar with the matter told The Associated Press Sunday.

The deal would represent another payout for Summit owners after its dividend of $200 million that followed a $750 million refinancing last March, the AP reports.

It looks very smart to put these two small studios together, Marla Becker, an analyst with Hudson Square Research, told TheWrap. Combined, they're going to have a lot more leverage that either would independently. It's really difficult for smaller studios to compete today.

Evercore Partners analyst Alan Gould also praised the potential deal.

M&A has been an important element of value creation for Lionsgate, he told Hollywood Reporter, pointing to the Santa Monica, Calif.-based company's acquistion of Trimark in 200, Artisan in 2003 and Debmar Mercury in 2007, among others.

The companies are fairly similar so we assume that a merger also should lead to significant operating and overhead savings, Gould continued.

Summit, based in Santa Monica, Calif., is a privately owned company. Summit's majority owner is Suhail Rizvi of Rizvi Traverse Management, while Summit's management, including co-chairmen Rob Friedman and Patrick Wachsberger, own about 30 percent of Summit.

Summit has seen considerable success with its distribution of the Twilight series. The Twilight Saga: Breaking Dawn Part 1, which was released in November, has generated over $659 million at the box office.

Meanwhile, Lions Gate has struggled recently. The company in November announced a net loss of $24.6 million in its fiscal second quarter after the company was hampered by weaker-than-expected performances at the box office.

Lions Gate distributes between 10 and 15 movies annually and also distributes television shows including Nurse Jackie, Tyler Perry's House of Payne and Weeds. The company has a market capitalization of $1.15 billion.

Shares of Lions Gate were down 0.36 percent to $8.38 in late-morning trading.