Image Entertainment Lawsuit Threatens Seagram/PolyGram Deal

A lawsuit filed Friday, July 31, in a Los Angeles US District Court could delay by many months Seagram Ltd.'s widely publicized takeover of PolyGram NV. The international mega-merger, valued at $10.4 billion, has ground to a halt because of a $100 million suit brought by Image Entertainment Inc., a video distributor based in Chatsworth, California.

Image Entertainment, the largest laserdisc supplier in the US and one of the largest DVD distributors, is seeking to prevent the acquisition of PolyGram by Seagram and the selloff of PolyGram Video or PolyGram Filmed Entertainment by either PolyGram NV or Seagram to help finance the deal. Image claims it has a legitimate contract with PolyGram, signed December 23, 1996, for the distribution rights to PolyGram's DVD and laserdisc titles over a five-year period. The distributor claims to have paid $3 million dollars in advances to PolyGram, half of an agreed-upon $6 million.

PolyGram received inquiries from at least ten potential bidders for its Filmed Entertainment division in the week before the lawsuit was filed. Spinning off this part of the company would put Image Entertainment’s contract in jeopardy, according to plaintiff’s attorney John Kirkland of the Beverly Hills law firm of Weissman, Wolff, Bergman, Coleman, & Silverman. "The acquisition of PolyGram by Seagram and the plan to split off the film unit would be a violation of these contracts," Kirkland says. The lawsuit is "a last resort," he explains, "because our clients were unable to get a reasonable response from PolyGram."

A Reuters news release pegged most of the bids for PolyGram's film division at between $700 million and $1 billion. The bids included offers from LA's Lakeshore Entertainment, Carlton Communications, Britain's EMI Group PLC, and French broadcaster Canal Plus. The most desirable gem among PolyGram's three film-related businesses is its film library, with over 1500 titles.

Among Seagram's other holdings are Universal Studios, which operates Universal Pictures, Geffen Records, and the Universal Studios theme parks. The Seagram Company, with 30,000 employees worldwide, also has a 45% stake in USA Networks. Its stock, which trades on the Toronto exchange, closed down slightly at $51.80 (Canadian) on Friday, August 7.