Hit Entertainment gets shareholder nod for buyout by Apax

MUMBAI: Hit Entertainment, which owns children's characters including Bob the Builder, has said that its shareholders have approved a takeover offer of $933 million from Apax Partners Worldwide. In India Bob the Builder airs on Pogo.

Media reports indicate that another firm Lions Gate Entertainment, is still considering making an offer to buy the London-based company. Last week a third bidder, New York's Classic Media dropped out of the running. Hit Entertainment has set the delist date from the London Stock Exchange for 25 May 2005. Apax's bid had been accepted by executives of the company including its founder Peter Orton last month.

In a Regulatory News Service statement, Hit Entertainment said that Lions Gate has until 13 May to announce a firm intention to make an offer or it will be unable under British takeover rules to make an offer for six months. Hit has released a 'route-map' for the Apax handover.

Hit had to issue a profits warning last June, after Wal-Mart reduced the amount of shelf space it dedicated to Bob the Builder products. The toon company had since been courted by the likes of Disney, NBC Universal and Time Warner. Disney was said to have been close to a deal but pulled out last minute.

Hit fired its CEO Rob Lawes last October after the profits slide and is now helmed by Charles Burdick. Burdick used to Telewest's CEO. To help shift its newly-acquired slate of kids brands, Apax is said to close to buying a high street retail chain after its £840 million bid for Woolworths.

Apax Partners' Paul Fitzsimons was quoted in media reports saying, "Hit is uniquely positioned in the global market for preschool children's entertainment, and has historically developed breakthrough characters and built a strong distribution platform. We are excited by the potential to take Hit to the next stage of its development through an expansion of its existing business platform, launch of the newly established US digital preschool channel, investment in Hit's key brands and acquisitions of new characters."

Orton, who will make about £30m from his six per cent stake has said that his company needed the support of a bigger parent. This is because expanding in the tough, competitive preschool market is not without significant risk as the Wal-Mart fall-out proved.

If Lions Gate gets a better offer on the table before the Apax deal is wrapped, Hit shareholders will still be able to switch buyer, and Apax will get just shy of £5 million for its trouble. In the past cable giant Comcast which last year unveiled a joint-venture with Hit to launch a US preschool channel - 30 per cent owned by Hit - and is keen to find content to feed its 21.5m-home cable network was considered a suitor.

It was in this context that Disney, which would have perhaps most to lose from such a channel being launching, is also being mentioned as the possible bidder. The Hit/Comcast cable channel, which also has Sesame Workshop and US public broadcaster PBS attached, debuts later this year.

Earlier this year Hit had posted poor interim results for the six months ended 31 January 2005. Turnover fell from £92.8 million to £70.2 million. EBITDA was down from £24m to £13.3m, and pre-tax profit tumbled from £14.6m to just £2.9m. Burdick explained the bad numbers by again referring to the US retail situation. "These interim results reflect the continued impact of a weak US dollar, issues with major retailers and weakness in the critical consumer licensing and home entertainment markets which has been particularly pronounced in the US."

At that time he said that improved second half results would be dependent on the success of Hit's video release schedule and the launch of the US cable channel joint-venture in September, which is backed by Comcast, Sesame Workshop and PBS.

"Operationally, we are focused in the US on revitalising the Bob the Builder brand, which returned to PBS in January, and launching the US cable channel later this year. Creatively, we have five existing brands in production and are developing new series and brands which are expected to be introduced in the next two years."

"The £489 million deal with Apax, is an attractive cash offer from Apax which values the company appropriately when you balance the difficult near term trading conditions with the strength of our portfolio of leading children's brands."

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