Image future rides on Relativity
Output deal could help studio avoid Lionsgate acquisition
By Susanne Ault -- Video Business, 9/8/2006
SEPT. 8 | The back-and-forth between Image Entertainment and its suitor Lionsgate may make good corporate drama, but whether the deal gets done will come down to the perceived value added by Image’s recent output deal with producer Relativity Media.
Following recent poor financial earnings reports from Image, analysts were giving Lionsgate the edge in its campaign to woo shareholders. But with Relativity backing such hits as Talladega Nights: The Ballad of Ricky Bobby, Image may be worth more than Lionsgate’s last $4 per share purchase offer, as it is set to soon release 20 Relativity flicks on DVD annually (VB, 8-21).
“Before that deal closed, shareholders were really disappointed in Image, and they wanted to go with Lionsgate,” said an analyst who covers Image. “But now that has all changed. If [Image] can come up with more specifics in terms of what titles they will be releasing from Relativity, that will really help their cause.”
The first Relativity titles will be announced by Sept. 30, before the Oct. 10 shareholder’s meeting, said Image financial officer David Borshell.
“We expect to be distributing feature films of the same caliber as the major studios,” Borshell said.
“It’s definitely a soap opera, and it has been fascinating to cover to be honest with you,” Northland Securities analyst Steve Denault said. “Lionsgate is doing what they should be doing, [offering] a price that is below what the company is worth, because there has been no other competition [from other bidders]. … I don’t think [Lionsgate] would go through all this burden if they weren’t still interested in Image.”
Thanks to Relativity, a number of analysts who cover Image, including Denault, believe a more fair offer for Image is now nearer $5 a share. As of Wednesday, Image stock was trading at $3.67 a share.
Lionsgate has not yet commented on the Relativity deal, and its proxy filings stress the $4 Image pricing, which was used in Lionsgate’s most recent July offer.
However, other analysts still favor the $4 price, noting that Image getting a boost from Relativity is not a certainty.
“It certainly doesn’t get me to jump on the bandwagon,” said Natexis Bleichroeder Inc. analyst Alan Gould, who covers Lionsgate. “It doesn’t mean [Relativity] is going to have a lot of Talladega Nights. It doesn’t say that they have the sequel to Talladega Nights.”David Miller, who covers both Image and Lionsgate for Sanders Morris Harris, believes the $4 price is fair, following the Relativity pact.
Miller describes the back-and-forth board maneuvers from the companies as “tedious” but is hopeful Lionsgate will prevail in soon acquiring Image.
“The deal looks to be immediately accretive to cash flow and net income in year one after consummation,” Miller said in an August analyst note.
