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Image Rejects Revised Lions Gate Offer

1 Nov, 2005 By: Erik Gruenwedel

Image Entertainment has rejected as inadequate the $80 million to $90 million revised acquisition bid by Lions Gate Entertainment.

A special committee created by the Chatsworth, Calif.-based company's board of directors made the decision. The committee also terminated the confidentiality agreement period between Image and Lions Gate.

In addition, Image executives enacted a so-called “poison pill” stockholders rights plan designed to thwart coercive or hostile takeover attempts by third parties.

Under the rights plan, common stock shareholders would be able to purchase equal shares of preferred stock for $12.42 per share if “a person or group” acquired 30 percent or more of Image's common stock. Should that person or group desire to acquire Image's outstanding shares (currently trading at $3.60 per share) it would have to pay twice the trading price.

David Miller, media analyst with Sanders Morris Harris in Los Angeles, believed Image erred in rejecting what he called a fair offer from Lions Gate. He said the studio, which owns 19 percent of Image stock, would likely sit on its heels for a few months before possibly making a lower bid offer for the company.

Miller said Lions Gate's revised cash offer was about 7 percent above its original stock bid. He said Image's rejection of the bid would likely send its stock below $3 per share.

“When it comes right down to it, the only thing holding up Image shares over the past three weeks was Lions Gate's offer,” said Miller. “Now that offer has been rejected and that is why you see Image's stock down 10 percent today [Nov. 1].”

In a statement, a Lions Gate spokesperson said “We have offered a full and fair price for Image. It should be obvious to all that, in setting our price, we have not only calculated the value of Image's assets on a standalone basis, but also factored in the synergies we bring to the transaction, and the value of Image's assets within a larger Lions Gate framework. We will continue to evaluate our options.”

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