Village Roadshow’s shareholder rollercoaster ride looks set to come to a halt. And there will be plenty that should relish the opportunity to disembark their cars.
The cinema, film and theme parks operator has historically punched above its weight in corporate drama but in terms of financial performance the same cannot be said.
Now all but one investor holdout, US fund Mittleman Brothers, seems to have caved in to the revised offer by Australian hedge fund BGH Capital of $3 a share.
Mittleman has previously said it thought Village Roadshow was worth $5 a share. But its 14.4 per per cent stake shouldn’t be enough to derail a scheme of arrangement vote from remaining shareholders in December.
It’s hard to see how Village Roadshow could be worth the price tag Mittleman ascribes to it. It is four years since Village traded at that level and now seems to be in a sufficiently parlous financial position that it will need an injection of equity to keep its bankers happy.
Given its line of business, Village Roadshow has been one of the most negatively COVID-impacted companies on the ASX.
But its woes pre-date COVID. Its performance has been disappointing and internal brawls between the Kirby brothers, who are the major shareholders, cast a pall over the unconventional governance of the company.
Even pre-pandemic, BGH had been working on a bid at $4. By the time BGH formalised its offer in August it was re-pitched at the far more abstemious base level of $2.20. And even at that level it was supported by Village Roadshow’s independent directors.
More recently, influential proxy group CGI Glass Lewis put its weight behind the deal – essentially advising shareholders to cut and run.
The board must be jumping through hoops that a previously recalcitrant investor Spheria Asset Management, which speaks for 7.8 per cent of the stock, has pushed BGH higher.
BHG needed to have the support of either Spheria or Mittleman to get the deal across the line and Spheria had stated previously that $3 was its magic number.
Incidentally Mittleman had threatened to take legal action against the directors accusing them of failing to discharge their duties to shareholders while fielding the BGH takeover bid.
“Given our belief that the [independent board committee] and the VRL board of directors have not properly discharged their duty to act in the interests of VRL shareholders by protecting them from blatant opportunism on the part of BGH, we have engaged legal counsel in Australia to petition ASIC in hopes of garnering regulatory intervention, and failing that, having our objections brought to the attention of the court,” Mittleman chief investment officer Christopher Mittleman wrote in a letter last month, which was sent to the ASX.
Just in case there were any other like-minded shareholders with rosie-eyed views on Village Roadshow’s current financial situation, on Monday the company included a snapshot of its current position. It doesn’t make for happy reading.
In the four months to October 31, it generated $5 million in cash flow and it expects cash flow to be in the order of $5 million to $15 million over the next seven months – and that includes the benefits of Jobkeeper. But it expects to need $55 million over that period in capital expenditure. Thus its net debt will blow out from $311 million to between $370 million and $380 million.
This equates to a $152 million increase in debt between January 2020 and June 2021.
Adding further uncertainty to Village Roadshow’s future was the September announcement that its contract with Warner Brothers to distribute theatrical films in Australia and New Zealand will be axed at the end of the year.
Dealing with these financial and operational issues will now fall to its new owners, who will undoubtedly have devised a strategic plan on the company’s prospects post COVID.
BGH has been particularly active in the pandemic-opportunism space, having made an unsuccessful tilt at buying Virgin Australia but lost out to another bunch of bargain hunters at Bain Capital.
It also forked out about half a billion dollars to snap up Healius’ 70 medical practices in a deal that other suitors had shied away from in the midst of the pandemic.
BGH founders Ben Gray, Robin Bishop and Simon Harle now need to strap themselves in for the Village Roadshow ride.
Source: Thanks smh.com