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Image Inks Distribution Deal with Relativity

14 Aug, 2006 By: Erik Gruenwedel

Image Entertainment Aug. 14 announced it signed a 10-year home entertainment distribution agreement with theatrical film production company Relativity Media.

Under terms of the deal, Chatsworth, Calif.-based Image issued Relativity 3.4 million shares, or about 16% of its common stock, making the producer the third-largest Image shareholder, after Lionsgate.

Image will hold a call with investors Aug. 16 to further discuss the deal.

Los Angeles-based Relativity has financially backed such movies as Will Ferrell's current box office hit Talladega Nights: The Ballad of Ricky Bobby, The Fast and the Furious: Tokyo Drift, Inside Man with Jodie Foster and Denzel Washington, and RV with Robin Williams.

Initial DVD and electronic media releases from Relativity will be announced at the end of the quarter (Sept. 29) and released in the second half of 2007, according a Securities and Exchange Commission filing. The following year, Image would distribute upwards of 20 theatrical films from Relativity on an annual basis.

Image would be responsible for all post-production matters issues, including authoring, compression, creative design, replication, marketing and advertising, sales, and distribution.

“The Relativity deal may be the single most significant agreement we've signed in the history of Image Entertainment,” said Image president and CEO Martin Greenwald. “By releasing major motion pictures into traditional and non-traditional retail locations, Image will be the beneficiary of hundreds of millions of dollars in revenues. This will also dramatically enhance the value of our large and diverse library.”

David Miller, analyst with Sander Morris Harris in Los Angeles, downplayed the financial implications of the deal and characterized it more as a defensive ploy against a potential hostel takeover bid by Lionsgate.

Lionsgate, which last year unsuccessfully tried to acquire Image, has submitted a list of nominees for Image's Oct. 10 board of directors election. Image is imploring shareholders to re-elect its current board, which includes Greenwald.

“If the guys at Relativity believe in [Greenwald] and his management team and can give them a vote of confidence along with other institutional investors then that would theoretically defeat any potential play by Lionsgate,” said Miller. “Lionsgate has a decision to make, do they go hostel or do they dispose of their shares on the open market.”

In the SEC filing, Image stated that Relativity's shares would be officially recorded Aug. 25 and therefore not eligible for consideration during its annual shareholder meeting.

A Lionsgate representative was not immediately available for comment.

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