Image Rebuffs Lions Gate Proxy Bid
Lions Gate Entertainment has become the largest independent movie studio by gobbling up smaller companies over the last several years. But Image Entertainment Inc. has been its most reluctant target yet, rejecting three unsolicited bids and successfully fending off a proxy battle waged by Lions Gate, the distributor of such movies as “Crash” and the upcoming “Saw III.”
Image, a Chatsworth-based DVD licensing and distribution company, announced Tuesday that all seven of its board members were reelected by a large margin. Lions Gate, which has its executive offices in Santa Monica, had put up a slate of six candidates. Analysts considered Lions Gate’s bid to take control of the board a longshot because 40% of the stock in Image is controlled by insiders or shareholders aligned with management.
Lions Gate is the second-largest shareholder in Image. Its 19.8% stake ranks behind the 27.7% held by Image Investors Co., a holding company created by broadcasting tycoons John Kluge and Stuart Subotnick. They are supporters of Martin Greenwald, Image’s founder and chairman.
Thomas W. Eagan, an analyst with Oppenheimer & Co., said Image’s library of 3,000 titles, mostly concert videos and movies, would fit neatly into Lion’s Gate, which has increased its profit margins by consolidating film and TV libraries under its banner.
Yet Lions Gate’s board nominees secured only 38% to 43% of the votes cast, and Image’s slate received 56%, according to figures released by the two companies.
“We hope this sends a clarion message to the board and management that they have a very frustrated shareholder base,” said Lions Gate Vice Chairman Michael Burns, noting that the studio has not decided its next step. “Right now the stock is trading significantly below our offer of eight months ago.”
Lions Gate offered to buy Image last year in a stock bid valued at about $85 million, or $4 a share. Image rejected that offer and another one for all cash as too low. Yet its stock has hovered between $3 and $4 a share all year. It closed Tuesday at $3.52, down 3 cents.
Image’s results have been hurt by the bankruptcy filings of such DVD retailers as Musicland and Tower Records. It reported a loss of $2.3 million in the first quarter of fiscal 2007, which ended June 30.
“Within the next 90 to 180 days, we will have regained our footing to profitability,” Greenwald said. “This will bring more suitors to the door.”
He added, “Neither I nor the board have a problem selling the company to Lions Gate. We just had a problem with the price.” This year, Lions Gate has released 15 movies that have grossed $231.9 million at the domestic box office, according to Exhibitor Relations Inc., a box-office tracking firm. It won the best picture Academy Award for the ensemble drama “Crash” and has found box-office gold with cheap horror franchises such as “Saw” and “Hostel.”
Founded in 1981 by Greenwald, a former stockbroker and porn theater operator, Image was originally financed with $120,000 from former porn star Marilyn Chambers (“Behind the Green Door”), her then-husband, Charles Traynor, and Thomas Sinopoli, a former adult film producer.
Image was one of the first laserdisc distributors in the early 1980s. It morphed into DVD distribution when laserdiscs became passe. The company distributes DVD concert videos such as Carlos Santana’s “Supernatural” and, most recently, rock band Korn’s “Live on the Other Side” tour. It also distributes content for Discovery Communications and the Criterion Collection, which is behind such classics as “The Seven Samurai” and “Brazil.”
However, Image does not own the rights in perpetuity, meaning it must constantly renegotiate those deals.
“Lions Gate put on a great fight,” Greenwald said.
“I was really impressed. Clearly they want to buy the company and we fit enormously well with their model. If we sell the company, I want to make sure the shareholders get a fair price. We only get to sell the company once.”