IWERKS EXPANSION REJECTED IN VOTE; SHAREHOLDERS SPURN SHOWSCAN ACQUISITION.

Byline: Dave McNary Daily News Staff Writer

Shareholders of Iwerks Entertainment Inc. spurned management's efforts Tuesday to expand, voting down a $19 million acquisition of troubled rival, Showscan Entertainment Inc.

Iwerks, which lost $4 million on $14 million in sales during the six months that ended Dec. 31, said it was ``disappointed'' with the results but added it plans to stick with its growth strategy in its core operations of motion-simulation rides and giant-screen theaters.

Chairman and Chief Executive Officer Charles Goldwater said in a statement, ``The tactics and timing of results may change as a result of this vote, but our mission - to firmly establish this company as a full-service provider of entertainment attractions - remains the same.''

The stock-swap deal had been opposed by analysts and a pair of major shareholders - Heartland Advisors, holder of 24.7 percent of Iwerks's stock and Providence Capital. They argued that Iwerks, a maker of motion simulator rides, was offering too much for Showscan, which produces films for giant-screen theaters, and that it had not spelled out how it will compete effectively with giant-screen leader Imax Corp.

Iwerks decided in December to reduce the purchase price for Culver City-based Showscan, which lost $5.9 million in the nine months ended Dec. 31. Iwerks had contended the merger would boost cash flow and cut duplicative costs.

Burbank-based Iwerks did not announce the voting results to Wall Street until after the market closed. Iwerks shares rose -1/2 to 3-1/4 Tuesday.