San Francisco private equity firm Hellman & Friedman has agreed to buy 75 percent of Getty Images, the world’s largest distributor of photographs and videos. The transaction is valued at about $2.4 billion, including the acquisition of debt.

Getty Investments will retain 25 percent when the transaction closes, mostly likely in the second quarter of this year, said Jonathan Klein, co-founder and chief executive officer of Getty Images.

Getty Images stockholders will receive $34 in cash for each outstanding share of common stock they own. The price represents a premium of 55 percent over the closing price Jan. 18, the last trading day before the company said it was considering a sale.

Klein and oil heir Mark Getty, who lives in London and is the son of the late Paul Getty and nephew of businessman and philanthropist Gordon Getty of San Francisco, founded the company in London in 1995. The co-founders acquired a small stock photo business, Tony Stone Images, and set out to “aggregate a fragmented mom-and-pop industry, to build it into a broadly based picture business,” said Klein.

Within 12 months, the company expanded beyond stock photography - used by advertising agencies, magazines, newspapers and other clients - to archival photos and video. After 16 months, the company went public.

Getty Images was the first company to sell a photo on the Web, in 1997, said Klein, and the following year it moved its corporate headquarters to Seattle.

Today, the company has 1,912 employees in 20 offices around the world.

The company grew by making acquisitions, but in recent years the part of the business that provides stock still photographs has softened as “more marketing dollars have moved away from print,” along with the spike in text-only paid-search, said Klein.

Nevertheless, Getty Images has a growing business in photographs for nontraditional media, and Hellman & Friedman found that attractive. The investors believe that part of the business is “misunderstood in the public markets right now,” according to a person familiar with the business who could not speak for attribution.

Andy Ballard, managing director of Hellman & Friedman, said, “Getty Images is the leader and pioneer in the visual content and digital media business. We believe in the vision and execution capabilities of Jonathan Klein and his team, and share their commitment to the company’s stakeholders and customers.”

Klein will remain CEO and Getty will remain chairman, the company said.

Klein said of the transaction, “I do not see it as the end of something but the beginning of the next chapters.”

Getty Images had 2007 revenue of $857.6 million and net income of $125.9 million. Its shares closed Monday at $31.67, up $7.22, nearly 30 percent, on the New York Stock Exchange.

E-mail George Raine at graine@sfchronicle.com.

(03-04) 03:11 PST BEIJING, China (AP) —

China announced a double-digit boost in defense spending Tuesday as a top lawmaker warned rival Taiwan from pursuing formal independence from Beijing.

The National People’s Congress, which opens its annual session Wednesday, is being presented with a 17.6 percent increase in military spending this year over 2007, to about $59 billion, spokesman Jiang Enzhu said, adding the money would mostly go to meet payrolls and rising fuel costs.

The rise marks the 18th double-digit percentage increase in 19 years Д spending that has ramped up the People’s Liberation Army’s ability to project power and drawn calls from Washington and Tokyo for Beijing to explain the buildup.

Hours before China announced the increase, the U.S. Defense Department released an annual assessment of China’s military, citing its improving space program, the launching of hacker attacks on foreign computer networks and a growing arsenal of missiles arrayed against Taiwan.

“China’s expanding and improving military capabilities are changing East Asian military balances,” the Pentagon report said.

Jiang, the legislative spokesman, and the Foreign Ministry defended the higher military spending in separate news conferences, saying that China’s intentions were not aggressive.

“We do not seek expansion. The purpose is to safeguard our sovereignty, security and territorial integrity,” Foreign Ministry spokesman Qin Gang told reporters.

Jiang said inflation meant the added money was needed to cover higher oil prices and boost salaries of the 2.3 million-member army.

China’s military budget accounted for 7.2 percent of government spending, far lower than U.S. military spending of 16.6 percent, Jiang said.

The higher military budget is all but certain to be approved during the two-week session of the National People’s Congress.

Among the army’s primary missions is enforcing China’s claim to Taiwan, a democratically ruled island that split with Beijing in a civil war a half-century ago. China considers Taiwan a renegade province and Jiang warned Taiwanese President Chen Shui-bian on Tuesday not to test Beijing’s patience.

Beijing is particularly anxious about a referendum accompanying Taiwan’s March 22 presidential election. The poll asks voters if they favored joining the United Nations under the name Taiwan Д a move China views as an attempt by Taipei toward legal independence. Beijing has said it would squelch such a move with military force.

“If the Chen Shui-bian authorities should stubbornly continue down the path, they will surely pay a dear price,” Jiang said.

He did not elaborate, other than saying the situation across the Taiwan Strait was “grim and complex.”

Also on the legislature’s agenda are a restructuring of government agencies and the announcement of senior Cabinet appointments, decisions already made by the Communist Party leadership for the party-controlled congress to publicly approve.

WASHINGTON: Ben Bernanke, chairman of the Federal Reserve, has told members of the U.S. Congress that he could support temporary tax cuts or spending measures to stimulate the economy, even if the measures temporarily increased the budget deficit, as long as they were quick and temporary.

But Bernanke, who is scheduled to testify Thursday before the House Budget Committee, has also made it clear that he will refuse to comment on Republican calls to link a stimulus package with a permanent extension of President George W. Bushs tax cuts.

Democratic lawmakers who have spoken with Bernanke said that the Fed chairman would not endorse any specific plan, but supported the general idea of propping up consumer spending and investment with temporary tax rebates or additional government spending.

Faced with growing evidence that the economy was slipping into a recession, congressional Democrats and Bush are trying to come up with a package of short-term measures that would put more money into peoples hands within the next few months.

Senator Charles Schumer, Democrat of New York and chairman of the Joint Economic Committee, said Wednesday that Bernanke was “generally supportive” of a stimulus package, as long as it was well conceived.

“He said that while he wasnt going to endorse a specific plan, if an economic stimulus package was properly designed and enacted so that it enters the economy quickly, it could have a very positive effect,” Schumer said.

Bernanke acknowledged last week that economic conditions have worsened in recent weeks and strongly suggested that the Federal Reserve would reduce the benchmark Federal funds rate at its next policy meeting on Jan. 30.

On Wall Street, investors are betting that the central bank will reduce overnight lending rates by half a percentage point, to 3.75 percent from 4.25 percent.

On Wednesday, the central bank released its so-called “Beige Book,” a compilation of anecdotal reports from its 12 regional banks, which said that economic activity appeared to have slowed to a crawl at the end of 2007.

The Fed chairman also met privately Monday with the speaker of the House, Nancy Pelosi, of California.

During that meeting, according to congressional officials, Bernanke neither urged Congress to enact an emergency measure nor signaled any opposition.

Instead, the Fed chairman echoed the concept if not the precise words of economists like Lawrence Summers, a former Treasury secretary under President Bill Clinton, who have called for any plan to be “timely, targeted and temporary.”

Democratic lawmakers generally favor measures aimed specifically at low- and middle-income families, arguing that those people need the extra money most acutely and are most likely to spend it immediately, rather than save it.

Though Democrats are weighing a variety of different measures, a consensus appears to be building that the package should cost about $100 billion.

Among the proposals circulating among Democrats are one-time tax rebates to almost all workers; temporary increases in unemployment benefits, food stamps and Medicaid payments; and new federal grants to state and local governments.

Some Democrats are also pushing for an increase in spending on public infrastructure like highways and bridges.

Administration officials and many Republicans lawmakers, by contrast, want to include temporary tax breaks for business, like an investment tax credit, that would spur additional investment. Bush and his top advisers have also been pushing for years to make his tax cuts of 2001 and 2003 permanent.

Many economists argue that making the tax cuts permanent would have no immediate effect on the economy, because they are not scheduled to expire until the end of 2010. But supporters say that such a move could provide a short-term lift because it would give investors greater certainty about tax policy in the years ahead.

Bernanke, who was a Fed governor and then chairman of Bushs Council of Economic Advisers before becoming Fed chairman two years ago, was expected to rebuff efforts by Republicans or Democrats to draw him into that battle.

Since becoming Fed chairman in February 2006, Bernanke has generally refused to comment on specific tax and spending proposals unless they had a direct bearing on the overall economy.

But the Fed chairman made it clear last week that he had become much more worried that the country could be falling into a recession. In a speech last week, he suggested that the Federal Reserve was ready to reduce interest rates “substantially” at its upcoming meeting.

Bernanke, a former professor of monetary policy at Princeton University in New Jersey who has closely studied the history of the Great Depression, was expected to warn U.S. lawmakers on Thursday that the country faced severe long-term budget problems in the decades ahead as more than 70 million baby boomers reach the age of retirement.