V2 acquisition impacted financials of deal.

As expected, Sheridan Square Entertainment is pulling out of its planned merger with publicly traded Hirsch International, an industrial embroidery machine distributor.

The independent label initially eyed the deal as a vehicle to go public through without having to do an initial public offering. But Sheridan Square's acquisition of the North American assets of V2 in February resulted in the label being undervalued in the pricing model used to forge the earlier July 20, 2005 merger agreement with Hirsch.

Consequently, instead of going forward with the merger, Sheridan Square has been working on a deal to refinance the company, based on a new valuation, sources say.