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Lionsgate Hints at Renewed Image Offer

15 Jun, 2006 By: Erik Gruenwedel

Lionsgate said it is interested in working with Image Entertainment's mergers & acquisitions consultant for a renewed cash offer.

Last year, Image rejected an $80 million to $90 million offer from the Santa Monica, Calif.-based minimajor — Image's second-largest shareholder. Chatsworth, Calif.-based Image then hired Lazard Freres & Co., a Los Angeles-based investment banker.

In an investor call, Michael Burns, vice chairman of Lionsgate, reiterated the studio's nomination of a slate to Image's board of directors and said the studio wanted to participate in the process with Lazard Freres.

Analysts have said that Lionsgate is primarily interested in the Image catalog and that a $4 per share cash offer seemed reasonable. At a recent financial presentation, Image chairman and CEO Martin Greenwald agreed that the distributor's catalog was worth $4 per share but felt the price neglected the rest of the company's worth.

“We are looking for somebody to step up to the plate,” said Greenwald.

Buoyed by DVD sales of Oscar-winning Crash and Saw II, among others, Lionsgate posted fourth-quarter (ended March 31) income of $38.9 million compared to $20.1 million during the same period last year.

Revenue for the quarter was $313.4 million, a 35% increase from $232 million last year, according a filing with the Securities and Exchange Commission.

Lionsgate reported fiscal-year 2006 home entertainment revenue of $527.2 million, up 13% from $465.3 million last year and $363 million in FY 2004.

CEO Jon Feltheimer said Lionsgate's proficiency in “packaging and re-packaging” its library coupled with a box office to DVD conversion rate “that is the highest in the industry” helped drive revenue.

“It is true that packaged media is maturing, but in the face of that we still had our biggest year ever in home entertainment,” said Feltheimer.

He said the studio would continue to repurpose content for digital delivery on Apple's iTunes Music Store, including episodes of “The Dead Zone,” “Wildfire” and “Weeds.” The latter has generated about $600,000 in incremental download revenue on iTunes.

“With strong orders for the [“Weeds”] DVD boxed set coming out next month, there is absolutely no indication that its digital performance cannibalized its packaged media potential,” Feltheimer said.

He said the studio would announce shortly two third-party electronic sellthrough agreements to augment existing deals with CinemaNow and Movielink.

“From the inception of our business plan, we have been prepared to capitalize on the higher margin revenue streams now emerging in a fragmented digital world of niche audiences,” Feltheimer said.

A sluggish fiscal year start, which included box office disappointments High Tension and Happy Endings, helped depress earnings for the year 70% to $6.1 million, compared to $20.3 million last year.

In addition to video, a 60% increase in television production revenue, from $82.8 million to $132.9 million, helped push overall fiscal-year revenue to $951.2 million, up 13% from $842.6 million last year.

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