IWERKS DEFENDS BUYOUT.

Byline: Dave McNary Daily News Staff Writer

Iwerks Entertainment Inc. took the offensive Wednesday, dismissing shareholder suggestions that its pending $17 million buyout of Showscan Entertainment is a bad deal.

Motion-simulator specialist Iwerks has been deep in red ink. It lost $4 million in the six months ended Dec. 31 on sales of $14 million, losses the company blamed on the Asian currency crisis.

But company officials insisted that buying rival Showscan will improve its profitability prospects by boosting revenue, eliminating duplicate costs and enabling it to compete more effectively with giant-screen leader Imax Corp.

``This merger is strategically significant to Iwerks in that it directly supports our ability to compete even more effectively with Imax by generating incremental cash flows - derived by being the premier provider of ride simulation attractions - that can then be invested in accelerating our giant screen business expansion,'' said Charles Goldwater, chairman and chief executive officer.

Providence Capital Inc., which owns 1.6 percent of Iwerks, urged shareholders this week to reject the Showscan transaction when they vote on March 31. ``In our view, the merger with Showscan will jeopardize the company's liquidity, dilute current shareholders and provide no benefit for the company in its competition in the giant screen market,'' said Herbert A. Denton, president of Providence Capital.

Denton said Iwerks has failed to show a detailed strategy for combining the companies and that the $6.9 million in transaction costs is excessive. Analyst Kevin Skislock of L.H. Friend, Weinress, Frankson & Presson agreed, saying Showscan is in ``weak fundamental shape.''

``I don't think this deal is a slam-dunk for shareholder approval,'' Skislock added.

Culver City-based Showscan lost $5.9 million on sales of $7.1 million for the nine months ended Dec. 31.