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Lions Gate-Artisan: A Good Marriage?

29 Jun, 2001 By: Joan Villa

As word spreads of a possible merger or buyout between Lions Gate Entertainment and Artisan Entertainment, industry sources say the combined company would be a more formidable contender -- even if it takes a while to get there.

Eyeing Artisan's strength in the video arena, Lions Gate reportedly offered in the neighborhood of $50 million for the company, short of the minimum $100 million needed to clinch the deal, but enough to prompt an Artisancounteroffer last week to buy Lions Gate.

Neither side would confirm what they denounced as rumor. In an analyst conference call last week, Lions Gate c.e.o. Jon Feltheimer would only saythe company continues to be “interested” in acquisitions “at the rightprice.” Last week, the company announced net income of $8.7 million (Canadian) for the fiscal year ended March 31 compared to a prior year loss.

Lions Gate also announced it would continue its video distribution deal withUniversal Studios Home Video and has renewed its Blockbuster revenue-sharingdeal.

Sources say a merger would benefit both players if they can overcome the huge stumbling block of who would control the merged company. “A deal makes a lot of sense,” says Tom Adams of Adams Media Research. “It takes a certain amount of size and scope to be able to compete in this business.” Artisan's video distribution strength and its library would complement Lions Gate'stheatrical and TV production, he says.

A deal would also mean significant market share gain, forming a company about the size of MGM Home Entertainment, according to research firm Alexander & Associates. Artisan, together with Lions Gate and its 2000acquisition Trimark, would garner around 4% market share based on 2000 VHS rental figures — on par with MGM. “This positions them a lot closer to a major studio as one entity and makes perfect sense,” explains research director Greg Durkin.

On the DVD front, Artisan has 203 titles and Lions Gate 298, including Trimark and subsidiaries Avalanche Home Entertainment and Studio Home Video, says Ralph Tribbey, editor of The DVD Release Report. The pair would have more than 500 titles in release, Tribbey says,adding “only Columbia, Warner Bros. and Image would have larger [DVD] catalogs.”

From Lions Gate's perspective, observes one industry insider, such a move“would eliminate the only other mini-major on the playing field” while creating a stronger video presence and opening up shelf space.

Lions Gate trades on the American Stock Exchange and in Toronto, but unfavorable market conditions forced Artisan to scrap plans for an initial public offering in March. The merger would help Artisan in mounting anotherIPO, sources say. One studio insider also speculates the deal could create an attractive takeover target by a major studio.

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