Lions Gate on course to buy Hit Entertainment

LIONS Gate Entertainment, whose films include Fahrenheit 9/11 and Monster’s Ball, is on course to swoop for Hit Entertainment, a British children’s television company that last month agreed to a $921 million (€703 million) takeover by venture capital firm Apax Partners.

Lions Gate requested access to Hit’s financial records, the Canadian company said yesterday. Hit, whose characters include Bob the Builder and Thomas the Tank Engine, has received two approaches since it agreed to be bought by Apax and is now “investigating” the proposals.

“Hit has got tremendous potential,” said Theresa Wise, a media analyst at Accenture in London. “A trade buyer has a bigger stable of rights and has access to (distribution) channels sorted out.’

The two new approaches might scupper the transaction with Apax, Europe’s largest buyout firm whose portfolio includes Ireland’s Golden Pages classified directory business. By acquiring London-based Hit Entertainment, Lions Gate would add characters to its portfolio of family entertainment brands, which includes Barbie videos and Care Bears.

Apax agreed to pay 300 pence a share in cash, or about €703m in total for Hit. A break-up fee of 1% of the value of the offer would be paid to Apax should the transaction not be completed. “We feel we have put up a full offer that the independent directors, the founder and management have accepted, and offers shareholders the certainty of cash,” said Nick Fox, a spokesman for Sunshine Acquisition Ltd., the company formed by Apax to buy Hit. “We also have a plan to develop and take the business forward that will require further investment.”

Apax said it would buy more characters and invest in the company’s US television channel. A dedicated pre-school digital channel will air in the US in September. There won’t be any cuts to Hit’s workforce, Apax said then. Hit, which said fiscal first-half profit was almost wiped out in a “challenging” market, agreed to sell itself after Wal-Mart Stores Inc, its biggest customer, cut US shelf space for children’s products last year. The action led to Hit’s first sales decline since 1997, while profit dropped by more than half.

Hit “has received two unsolicited early stage approaches and requests for information from other potential offerors,” the company said in a statement yesterday. “While Hit is investigating these approaches, their preliminary nature means that there can be no assurance that they will lead to a further offer for the company.”