Speculate as to why Lionsgate refinanced as part of the transaction the existing Summit Term Loan B due in 2016 that had been borrowed in the early 2000s?

Hollywood Biggest Independent Studios Combine in a Leveraged Buyout Key Points LBOs allow buyouts using relatively little cash and often rely heavily on the target firm's assets to finance the transaction. Private equity investors often "cash out of their investments by selling to a strategic buyer. The Lionsgate-Summit tie-up represented the culmination of more than four years of intermittent discussions between the two firms. The number of studios making and releasing movies has been shrinking amid falling DVD sales and continued efforts to transition to digital distribution. As the largest independent studios in Hollywood, both firms saw their cash flow whipsawed as one blockbuster hit would be followed by a senes of failures. Film and TV program libranes offered the source of cash flow stability due to the recurring fees paid by those licensing the nghts to use this proprietary content. Lionsgate first approached Summit about a buyout in 2008 in an effort to bolster its film and TV library. However, it was not until early 2012 that the two sides could reach agreement. The time was ripe because Summit t's investors were looking for a way to cash in on the success of the firm's Twilight movies series. Consisting offour films, this series had grossed $2.5 billion worldwide. On February 2 2012, Lionsgate announced that it had reached an agreement to acquire Summit Entertainment by paying Summit shareholders $412.5 million in cash and stock for all of their outstanding shares and assumed debt of $506.3 million. According to the merger agreement, Lionsgate would provide administrative, production, and distribution services to Summit for a 10% servicing fee. Layoffs are expected at both firms as they merge redundant departments in their film operations, such as marketing, production, and distribution. The acquisition provides a windfall to Summit's investors, including eBay cofounder Jeff Skoll's film company Media and private equity fund Traverse Management. These investors had previously received a $200 million dividend as part ofa recapitalization in early 2011 and gained handsomely from the sale to Lionsgate. Lionsgate is a diversified film and television production and distribution company, with a film library of 13,000 titles. The firm's major distribution channels include home entertainment and prepackaged media (DVDs, digital distribution (on-demand T) and pay TV premium metwork programming. Summit, also a producer and distributor of film and TV content, has a less consistent track record in realizing successful releases, with the Twilight "franchise" its p However, Summit does have strong intemational licensing operations, with aman in the United gements States, Canada, Germany, France, Scandinavia, Spain, and Australia. The acquisition also strengthens Lionsgate's position as a leading content supplier and, controlling the Twilight and Hunger Games franchises, positions Lionsgate as a market leader for young adult audiences. The combination also results in cost and revenue synergies, more diversified cash flow streams, and greater access to intemational distibution channels. Figure 1 3.3 illustrates the subsidiary structure for completing the buyout of Summit Entertainment LLC. As is typical of such transactions Lions created a merger subsidiary Merger Sub) and of $100 million in cash and $69 million in L funded the subsidiary with its equity contribution ions gate stock, receiving 100% of the subsidiary's stock in exchange. Merger Sub was further capitalized by bank tema loan of S500 million. Following a tender offer to Summit's shareholders by Merger Sub Merger Sub was merged into Summit Entertainm t, with Summit surviving as a wl holly owned subsidiary of Lionsgate in a reverse trangular merger. At closing, S284.4 million of Summit's excess cash was used to finance the total cost ofthe deal. $284.4 Million in Excess Lionsgate Summit Entertainment Entertainment Cash $100 Million in Cash &$69 Merger Merger Sub Merges Million in With Summit Sub Stock Lionsgate Hollywood Biggest Independent Studios Combine in a Leveraged Buyout Key Points LBOs allow buyouts using relatively little cash and often rely heavily on the target firm's assets to finance the transaction. Private equity investors often "cash out of their investments by selling to a strategic buyer. The Lionsgate-Summit tie-up represented the culmination of more than four years of intermittent discussions between the two firms. The number of studios making and releasing movies has been shrinking amid falling DVD sales and continued efforts to transition to digital distribution. As the largest independent studios in Hollywood, both firms saw their cash flow whipsawed as one blockbuster hit would be followed by a senes of failures. Film and TV program libranes offered the source of cash flow stability due to the recurring fees paid by those licensing the nghts to use this proprietary content. Lionsgate first approached Summit about a buyout in 2008 in an effort to bolster its film and TV library. However, it was not until early 2012 that the two sides could reach agreement. The time was ripe because Summit t's investors were looking for a way to cash in on the success of the firm's Twilight movies series. Consisting offour films, this series had grossed $2.5 billion worldwide. On February 2 2012, Lionsgate announced that it had reached an agreement to acquire Summit Entertainment by paying Summit shareholders $412.5 million in cash and stock for all of their outstanding shares and assumed debt of $506.3 million. According to the merger agreement, Lionsgate would provide administrative, production, and distribution services to Summit for a 10% servicing fee. Layoffs are expected at both firms as they merge redundant departments in their film operations, such as marketing, production, and distribution. The acquisition provides a windfall to Summit's investors, including eBay cofounder Jeff Skoll's film company Media and private equity fund Traverse Management. These investors had previously received a $200 million dividend as part ofa recapitalization in early 2011 and gained handsomely from the sale to Lionsgate. Lionsgate is a diversified film and television production and distribution company, with a film library of 13,000 titles. The firm's major distribution channels include home entertainment and prepackaged media (DVDs, digital distribution (on-demand T) and pay TV premium metwork programming. Summit, also a producer and distributor of film and TV content, has a less consistent track record in realizing successful releases, with the Twilight "franchise" its p However, Summit does have strong intemational licensing operations, with aman in the United gements States, Canada, Germany, France, Scandinavia, Spain, and Australia. The acquisition also strengthens Lionsgate's position as a leading content supplier and, controlling the Twilight and Hunger Games franchises, positions Lionsgate as a market leader for young adult audiences. The combination also results in cost and revenue synergies, more diversified cash flow streams, and greater access to intemational distibution channels. Figure 1 3.3 illustrates the subsidiary structure for completing the buyout of Summit Entertainment LLC. As is typical of such transactions Lions created a merger subsidiary Merger Sub) and of $100 million in cash and $69 million in L funded the subsidiary with its equity contribution ions gate stock, receiving 100% of the subsidiary's stock in exchange. Merger Sub was further capitalized by bank tema loan of S500 million. Following a tender offer to Summit's shareholders by Merger Sub Merger Sub was merged into Summit Entertainm t, with Summit surviving as a wl holly owned subsidiary of Lionsgate in a reverse trangular merger. At closing, S284.4 million of Summit's excess cash was used to finance the total cost ofthe deal. $284.4 Million in Excess Lionsgate Summit Entertainment Entertainment Cash $100 Million in Cash &$69 Merger Merger Sub Merges Million in With Summit Sub Stock Lionsgate