Premium channel Starz began trading as a separate publicly traded entity Monday, opening on the NASDAQ Global Market System at $14.15 per share and rising more than 10% in its market debut.
Starz’ debut marks the end of a nearly five-month journey to separate the premium channel’s assets from parent Liberty Media Corp., and transform the programmer’s shares into an asset-backed security.
Starz shares opened at $14.15 each, rising as high as $15.75 each (up 11.3% or $1.60 each) in early trading Monday. The stock closed at $15.59 each on Jan. 14, up 9.8% or $1.39 per share.
Liberty said it completed the distribution of Starz shares on Friday Jan. 11 after the market close – Liberty Media shareholders received one share of Starz common stock for every Liberty share they held.
The complicated transaction actually involved Liberty spinning off its non-Starz assets into a separate company, temporarily known as “Liberty Spinco,” while the Starz assets remained in the Liberty Media entity. Once the distribution was complete, Liberty Media changed its name to Starz, and began trading under the symbols “STRZA” on Jan. 14, while Spinco changed its name to Liberty Media and began trading under the temporary symbol “LMCAD” on Jan. 14. On Jan. 22, Liberty Media will trade under the symbol “LMCA.”
Following the spin, Liberty principal assets include ts consolidated subsidiaries Atlanta National League Baseball Club, Inc. and TruePosition, Inc., equity affiliates Sirius XM Radio Inc. and Live Nation Entertainment, Inc. and minority investments in public companies such as Barnes & Noble, Inc., Time Warner Inc., Time Warner Cable Inc. and Viacom Inc. Starz' businesses and assets consist of those of Starz, LLC, its wholly owned subsidiary.
The interest in Starz shares seems to be driven by expectations that it soon could be an acquisition target. Even Liberty chairman John Malone has said publicly the premium channel could do better with a larger partner.
Analysts have speculated that possible suitors for the channel could be Time Warner Inc.’s Home Box Office, CBS’ Showtime or Viacom’s startup premium channel Epix.
In the meantime, Starz has said it will continue to invest in original programming. The channel has launched several new series in the few years, including Camelot, Boss and Miami-based period drama Magic City. The next installment of its Spartacus gladiator franchise – Spartacus: War of the Damned – is scheduled to begin Jan.25 and original series Da Vinci’s Demons, is scheduled to premier later this year.
In a research report Monday, Morgan Stanley media analyst Ben Swinburne wrote that as a newly traded public company, Starz is likely to pump more money into originals programming. He estimated Starz could add one new show a year, pushing its current 30 hours of originals annually to 85 hours by 2017. That is also the time that its output deal with Walt Disney Studios is expected to expire. In December Disney agreed to license its studio output to Netflix for an estimated $350 million to $400 million per year.
In his note to clients, Swinburne estimated that Starz could triple its original programming spending from about $100 million in 2012 to around $300 million in 2017.
“However, unless originals prove to be highly successful, we expect Starz to experience a revenue hit in 2017 as distributor leverage increases in the face of lost Disney programming and an unproven slate of originals,” Swinburne wrote.