Image renews its interest in Lionsgate

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Specialty DVD distributor Image Entertainment on Tuesday told Canadian studio Lionsgate to forget their October proxy fight and renew previous merger talks.

"Lionsgate is still a very interesting possibility for our shareholders. We just have to come to terms," Martin Greenwald, Los Angeles-based Image Entertainment president and CEO, told analysts after his company posted a second-quarter loss and outlined plans for a radical restructuring to trim operating costs.

Image last month won a bitterly fought proxy vote against Lionsgate, which has a 19% stake in the U.S. company and has been pursuing Image for more than a year.

Despite that run-in, Greenwald said he was prepared to drop his cudgels and see Lionsgate contact Lazard Freres & Co. and a special committee of Image board members to talk about a possible merger.

"We're a public company. If Lionsgate wants to review the process and pick that up and go with it with the special committee, that would certainly be invited," Greenwald said.

A spokesman for Lionsgate declined comment.

The overture came as Image unveiled a second-quarter loss of $3.8 million for the quarter ending Sept. 30, compared with a loss of $613,000 for the same period a year ago. Revenue of $22.8 million was slightly lower than a year ago in part because of the bankruptcy of Tower Records, which sold Image DVDs.

Greenwald also projected a loss for fiscal 2007 after previously forecasting profitability. Shares of Image, which rose 1.1% to $3.57 during the regular session, fell 5% in after-hours trading Tuesday.

"Although the currently market environment remains difficult, we believe that Image remains a strong independent presence in both the home video and digital-distribution marketplace," Greenwald said.
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