Intermedia saw two thirds of its value wiped out within hours on Monday after it cancelled its imminent merger with production firm Spyglass Entertainment and slashed its earnings forecast.
Intermedia's Neuer Markt-listed stock fell as much as 66% before recovering slightly to Euros 7.21, down more than 62%. The company said that Nigel Sinclair and Guy East, who had been expected to step down to make way for Spyglass co-chiefs Gary Barber and Roger Birnbaum, would now continue as co-chairmen.
Intermedia said it expects earnings before interest and tax (EBIT) to be "slightly negative" when it reports annual results on March 14. The company had previously been expected to record a year-end EBIT of around Euros 25m. That figure was already halved from initial predictions after Intermedia missed its nine-month targets.
Merck Finck & Co declared that "sentiment for the stock will be negative for the next six months on the basis of this news... We therefore downgrade to sell".
Sales are also expected to come in below Intermedia's target of around Euros 280m. Earlier sales predictions for 2001 of Euros 355m were also revised in January, causing Intermedia's stock to slide 20%.
Spyglass's anticipation of a negative market reaction to Intermedia's results appears to have been the final trigger to the cancellation of the deal. Spyglass's principal shareholders were reportedly to have received seven million shares in Intermedia, plus a cash payment of around $50 million.
Intermedia had hoped the Spyglass acquisition would boost its sales to more than Euros one billion. Many in the industry are sceptical that Intermedia can reach such ambitious targets - its pre-flotation sales in 1999, by contrast, were a mere Euros 115.7 million.
But the company said that its latest results had been hit by changes in accountancy procedures and its re-organisation. Part of its re-structuring, Intermedia confirmed, means relocating further operations from London to Los Angeles as part of its strategy to focus on high-profile event movies. The company said it had dropped KPMG as its auditor in favour of PricewaterhouseCoopers because of the latter's experience in the film business.
One report suggested that the delay was because Intermedia was moving away from cash up-front minimum guarantee sales deals to distribution deals where it takes share of profits from a film's release. As part of that change, the report said, auditors require the firm to book all its sales under distribution terms, which analysts say can mean a delay of up to a year before revenues are seen on the balance sheet.
Martin Blaney in Berlin contributed to this report