Lions Gate selling 49 pct of TV Guide channel

* Stake going to One Equity Partners, Allen Shapiro

* Lions Gate to get $123 mln for stake

* Looking to turn TV Guide into entertainment channel

(Adds CEO comments, edits)

By Sue Zeidler

LOS ANGELES (Reuters) - Lions Gate Entertainment Corp ( LGF - news - people ) agreed to sell a 49 percent stake in the TV Guide channel for about $123 million, aiming to turn the network into an entertainment channel.

The buyers are One Equity Partners, a private equity arm of JPMorgan Chaser & Co , and Allen Shapiro, former chief executive officer of Dick Clark Productions, who had previously reached a deal to buy the network before it was sold to Lions Gate, the studio said Thursday.

While TV Guide Networks is distributed in more than 83 million homes, its lack of significant original programming has prevented it from being a strong contender as an entertainment destination -- particularly as on-screen electronic program guides are provided now by satellite and cable providers.

Lions Gate is bringing Shapiro and One Equity in to try to transform TV Guide into an entertainment network akin to NBC Universal's Bravo channel, News Corp's FX, or Cablevision ( CVC - news - people ) System Corp's AMC.

Shares in the independent film studio behind the "Saw" movie franchise and "Mad Men" TV series closed up 3.5 percent to $5.60 on the New York Stock Exchange.

Shapiro had struck a deal to buy the TV Guide channel and accompanying web sites from Macrovision ( MVSN - news - people ) Solutions Corp back in late 2008. But Macrovision killed that deal in January and instead sold the company to Lions Gate for $255 million.

"The face of the network will shift in January. That will give us running room with Allen to bring our resources to bear," said Lions Gate chief executive officer Jon Feltheimer in an interview.

One Equity Partners retains the option of buying another 1 percent stake under some circumstances. The deal further solidified its ties with JPMorgan, the lead banker on its $340-million credit facility.

Shapiro said Thursday the TV Guide assets are unique and offer opportunities for sustained future growth.

In October 2008, Macrovision sold the once wildly popular TV Guide magazine to equity fund OpenGate Capital for $1. Connections between the magazine and network were severed.

WANTED: CONTENT

Lions Gate plans to shift it away from the scrolling guide to more content. Since closing the acquisition of TV Guide in March, it has aggressively bid on programming like HBO's popular "Entourage" series, said a person familiar with the deal, noting it was ultimately edged out by higher bidders.

Lions Gate co-owns FEARnet, a video-on-demand Internet horror channel, with Sony Corp ( SNE - news - people ) and Comcast ( CMCSA - news - people ). It is also involved in Epix, a network it is developing with Viacom Inc ( VIA - news - people ) and Metro-Goldwyn-Mayer Inc, to begin operation in October.

Activist shareholder Carl Icahn, with a 14.5 percent stake in Lions Gate, had called the TV Guide acquisition reckless and said he might wage a proxy war for the studio.

He recently offered to buy $316 million in debt, but got only $583,000 worth of convertible bonds.

Investors said while the debt tender by Icahn has misfired, he might still put up a slate of directors before a September shareholder meeting.

"He couldn't get close to the amount of debt that he wanted," said Richard Dorfman, managing director of investment firm Richard Alan Inc, which owns shares in Lions Gate. "That avenue has been blocked, but he has a decision to make and it's whether or not to initiate a full-scale proxy war."

Dorfman did not rule out the possibility of Lions Gate and Icahn coming to an amicable agreement that might give Icahn a few board seats.

When asked if there had been any interaction with Icahn or if interaction be welcome, Feltheimer said: "We like to maintain ongoing communication with our shareholders."

Lions Gate has recently had a good streak at the box office, racking up about $190 million in the fourth quarter thanks to films like "My Bloody Valentine 3-D," Tyler Perry's "Madea Goes To Jail" and "The Haunting in Connecticut."

Nevertheless, it is projected to post another loss because marketing costs for wide releases are expensed as incurred. It expects a profit before interest and taxes, of more than $50 million for fiscal 2010. (Reporting by Susan Zeidler; Editing by Tim Dobbyn)

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