Image, BTP close to terminating merger
Each company accusing other of breach of contract
By Susanne Ault -- Video Business, 1/25/2008
JAN. 25 | BTP Acquisition Co.’s purchase of Image Entertainment appears close to collapse, as both parties are claiming the other is in breach of contract.
Image is accusing BTP of failing to provide regular briefings on the status of its financing of the purchase, which Image says is part of their agreed upon merger terms.
On Thursday, Image said BTP refused to provide necessary information, and Image’s board of directors moved to seek a solution, including terminating the merger. The Image board also might demand a $4.2 million business interruption fee from BTP.
After numerous extensions, due mostly to the companies requesting more time to finalize Image’s purchase, the updated deadline for the two to close the transaction earlier this month was set for Feb. 1.
On Jan. 23, BTP issued a Notice of Default to Image, asserting that Image is in breach of contract for not being able to secure approvals from the DVD supplier’s lender for $60 million. BTP says this cash, as dictated by the merger terms, is needed to consummate the merger transaction. In turn, BTP is demanding back the $3 million it has deposited over the last several weeks into a trust, which was created to underscore the company’s continued commitment to purchase Image.
BTP says it is aware that Image is looking to call off the merger, but says it disputes Image’s allegations that it is in breach of contract. Although BTP stops short of likewise saying it wants to pull out of the merger, the company warns in the default notice, “To date, Image has failed to provide BTP with any material assurances that Image can or will cure its breaches and satisfy the conditions to the consummation of the merger … as a result, at this time, BTP can provide no assurances that the merger will be consummated under the terms set forth in the merger agreement.”
Although BTP has shown intent to purchase with its $3 million deposit, the company signaled late last year that it wanted to change the original purchase terms by exploring buying Image shares on the open market. That would be a blow to Image shareholders who had been expecting a much richer $4.68 per share as originally accepted upon their approval of the merger.
At that time, Image management had no comment. But the company likely was disgruntled over the fact that BTP was looking to significantly reduce the expected payout to Image shareholders. As of midday trading Friday, Image’s share price was $1.65.
Additionally, Image told CT1 Holdings, a BTP-affiliated distribution company, that CT1 was in breach of a multi-film output deal the two had inked in December. Image had earlier considered this CT1 pact as proof that despite the months-long delay, BTP did in fact want to buy Image.
Although fading, the chance is still there for the two parties to merge. But Image is demanding that BTP abides by its demands for financial transparency.
“We are very disappointed that after granting these extensions, BTP has refused a week before the scheduled closing date to provide us with the status and availability of the financing,” said an Image spokesman. “If BTP can demonstrate to our satisfaction that it has the ability to finance the transaction, Image is ready to close. If not, we have no choice but to exercise our rights under the merger agreement, seek collection of the $4.2 million business interruption fee and pursue all other available remedies.”
