Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<div>
<p>On the 18 May, Aussie theme parks and movie theater operator <a href="https://www.smartkarma.com/entities/village-roadshow-ltd" target="_blank" data-smartkarma-citation="entities:7836:1" rel="noopener">Village Roadshow (VRL AU)</a> entered into <a href="https://www.asx.com.au/asxpdf/20200518/pdf/44hx6rjz13vp2b.pdf" target="_blank" rel="noopener">exclusive talks</a> with BGH Capital, which was followed on the 7 August with the <a href="https://www.asx.com.au/asxpdf/20200807/pdf/44l8s8vg0qgjdy.pdf" target="_blank" rel="noopener">entering</a> into an Implementation Agreement, such that VRL shareholders would receive, under Structure A, up to A$2.45/share comprising A$2.20/share (A$2.10/share under Structure B) plus an additional A$0.25/share upon the re-opening of theme parks and cinemas, and Queensland's border being open to any person from NSW and Victoria. </p>
<p>At the time, I viewed the offer as being overly wrought, highly opportunistic, and heavily caveated, enabling the key shareholders to remain largely invested in the back-end; and failing that option (Structure A) - penalizing minorities via a lower cash option under Structure B.</p>
<p>Mittleman Investments agreed, and <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02291037-3A552048?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">said</a> it intends to vote its shares against both alternatives. Spheria Asset Management <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02307851-3A555222?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">chimed</a> in early this month.</p>
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<h3>A Recent Timeline of Events</h3>
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<div>
<div>
<table class="table table-striped">
<tbody>
<tr>
<td style="width: 93.7143px;">
<h3>Date</h3>
</td>
<td style="width: 610.286px;">
<h3>Date in the Date</h3>
</td>
</tr>
<tr>
<td style="width: 93.7143px;">29-Aug-19</td>
<td style="width: 610.286px;">
<p>Release of  <a href="https://www.asx.com.au/asxpdf/20190829/pdf/44800hyl7gkz2s.pdf" target="_blank" rel="noopener">FY19</a>  results. VRL reported an underlying profit of A$20.6mn in against a loss of $7.3mn the previous year. The company declared a return to dividends with a fully franked dividend of A$0.05/share. At the time of these full-year results, Burke said the key issues with John had largely been addressed.</p>
</td>
</tr>
<tr>
<td style="width: 93.7143px;">19-Dec-19</td>
<td style="width: 610.286px;">Pacific Equity Partners <a href="https://www.asx.com.au/asxpdf/20191219/pdf/44cqw7hyn865wn.pdf" target="_blank" rel="noopener">tabled</a> a non-binding Offer at A$3.90/share, a 21.9% premium to last close, by way of a Scheme. PEP has also agreed to buy a 19% stake (at $3.90/share) from VRC, which would indicate Burke and the brothers are on the same page.<br><br>
<p>This is a <a href="https://www.asx.com.au/asxpdf/20191219/pdf/44cqwl4t5yh94r.pdf" target="_blank" rel="noopener">call option</a> on 19% of shares out - or Relevant Shares - between PEP and VRC. If an alternative offer is recommended by Village's board, the call option can be exercised. Voting remains with VRC until the Relevant Shares are exercised.</p>
</td>
</tr>
<tr>
<td style="width: 93.7143px;">23-Jan-20</td>
<td style="width: 610.286px;">VRL received a non-binding, indicative <a href="https://www.asx.com.au/asxpdf/20200124/pdf/44dh80xy1977ll.pdf" target="_blank" rel="noopener">offer</a> from BGH Capital of $4.00/share, a 25% premium to last close, and a small premium to PEP's $3.90/share offer the previous month.</td>
</tr>
<tr>
<td style="width: 93.7143px;">19-Mar-20</td>
<td style="width: 610.286px;">
<p>VRL <a href="https://www.asx.com.au/asxpdf/20200319/pdf/44g6ftp3syn8tb.pdf" target="_blank" rel="noopener">said</a> they continue to assist PEP and BGH with their respective due diligence. Exposed to cinemas and theme parks amidst the virus - VLR was down 75% from its recent high at this time.</p>
</td>
</tr>
<tr>
<td style="width: 93.7143px;">18-May-20</td>
<td style="width: 610.286px;">
<a href="https://www.asx.com.au/asxpdf/20200518/pdf/44hx6rjz13vp2b.pdf" target="_blank" rel="noopener">Enters</a> into exclusive discussions with BGH.</td>
</tr>
<tr>
<td style="width: 93.7143px;">16-Jun - 5-Aug</td>
<td style="width: 610.286px;">Various announcements extending the exclusivity agreement with BGH</td>
</tr>
<tr>
<td style="width: 93.7143px;">7-Aug-20</td>
<td style="width: 610.286px;">
<a href="https://www.asx.com.au/asxpdf/20200807/pdf/44l8s8vg0qgjdy.pdf" target="_blank" rel="noopener">Entering</a> into an Implementation Agreement with BGH. </td>
</tr>
<tr>
<td style="width: 93.7143px;">28-Aug-20</td>
<td style="width: 610.286px;"><a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02273676-3A548632?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">FY20 results</a></td>
</tr>
<tr>
<td style="width: 93.7143px;">25-Sep-20</td>
<td style="width: 610.286px;">"<a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02285343-3A551068?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">Film Deferral Event</a>" under the Implementation Agreement - no A$0.08/share additional payment.</td>
</tr>
<tr>
<td style="width: 93.7143px;">2-Oct-20</td>
<td style="width: 610.286px;">Mittleman bumps to <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02290462-3A551960?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">10.09%</a>
</td>
</tr>
<tr>
<td style="width: 93.7143px;">7-Oct-20</td>
<td style="width: 610.286px;">Mittleman says it will vote <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02291037-3A552048?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">against</a>
</td>
</tr>
<tr>
<td style="width: 93.7143px;">8-Oct-20</td>
<td style="width: 610.286px;">Spheria, having dipped below 5% back on xx, now has <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02292760-3A552377?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">6.20%</a>.</td>
</tr>
<tr>
<td style="width: 93.7143px;">9-Oct-20</td>
<td style="width: 610.286px;">Scheme Meeting <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02292036-3A552242?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">confirmed</a> for the 26 November</td>
</tr>
<tr>
<td style="width: 93.7143px;">12-Oct-20</td>
<td style="width: 610.286px;">Scheme Booklet <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02292758-3A552376?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">lodged</a> with ASIC and expected to be despatched on or before the 21 October, and the Scheme Meetings tentatively set for the 26 November.</td>
</tr>
<tr>
<td style="width: 93.7143px;">28-Oct-20</td>
<td style="width: 610.286px;">Spheria bumps to <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02302992-3A554387?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">7.80%</a>
</td>
</tr>
<tr>
<td style="width: 93.7143px;">4-Nov-20</td>
<td style="width: 610.286px;">Mittleman bumps to <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02305802-3A554879?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">11.24%</a>
</td>
</tr>
<tr>
<td style="width: 93.7143px;">9-Nov-20</td>
<td style="width: 610.286px;">Uplift of A$0.12/share <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02306239-3A554956?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">locked in</a>
</td>
</tr>
<tr>
<td style="width: 93.7143px;">10-Nov-20</td>
<td style="width: 610.286px;">Mittleman bumps to <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02308127-3A555266?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">12.87%</a>
</td>
</tr>
<tr>
<td style="width: 93.7143px;">12-Nov-20</td>
<td style="width: 610.286px;">Spheria says it will vote <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02307851-3A555222?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">against</a>
</td>
</tr>
<tr>
<td style="width: 93.7143px;">12-Nov-20</td>
<td style="width: 610.286px;">Mittleman bumps to <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02311114-3A555880?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">14.34%</a>
</td>
</tr>
</tbody>
</table>
</div>
</div>
<div>
<div style="text-align: left;" class="content-caption">Source: ASX</div>
</div>
<h3>The New News</h3>
<div></div>
<p>This morning, VRL <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02312095-3A556080?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">announced</a> it had agreed with BGH that the terms are now A$3.00 under the Structure A Scheme and A$2.95/share under the Structure B Scheme, as had been rumoured last Friday. <br><br>Spheria now intends to vote in favour of both A and B. No word from Mittleman as yet.<br><br>The Scheme Meeting will now expected to be held on the 7 December, subject to Court approval.</p>
<div>
<p>More below the fold.</p>
</div>
<div>
<p></p>
</div>


On the 18 May, Aussie theme parks and movie theater operator Village Roadshow (VRL AU) entered into exclusive talks with BGH Capital, which was followed on the 7 August with the entering into an Implementation Agreement, such that VRL shareholders would receive, under Structure A, up to A$2.45/share comprising A$2.20/share (A$2.10/share under Structure B) plus an additional A$0.25/share upon the re-opening of theme parks and cinemas, and Queensland's border being open to any person from NSW and Victoria. 
At the time, I viewed the offer as being overly wrought, highly opportunistic, and heavily caveated, enabling the key shareholders to remain largely invested in the back-end; and failing that option (Structure A) - penalizing minorities via a lower cash option under Structure B.
Mittleman Investments agreed, and said it intends to vote its shares against both alternatives. Spheria Asset Management chimed in early this month.


A Recent Timeline of Events







Date


Date in the Date



29-Aug-19

Release of  FY19  results. VRL reported an underlying profit of A$20.6mn in against a loss of $7.3mn the previous year. The company declared a return to dividends with a fully franked dividend of A$0.05/share. At the time of these full-year results, Burke said the key issues with John had largely been addressed.



19-Dec-19
Pacific Equity Partners tabled a non-binding Offer at A$3.90/share, a 21.9% premium to last close, by way of a Scheme. PEP has also agreed to buy a 19% stake (at $3.90/share) from VRC, which would indicate Burke and the brothers are on the same page.  
This is a call option on 19% of shares out - or Relevant Shares - between PEP and VRC. If an alternative offer is recommended by Village's board, the call option can be exercised. Voting remains with VRC until the Relevant Shares are exercised.



23-Jan-20
VRL received a non-binding, indicative offer from BGH Capital of $4.00/share, a 25% premium to last close, and a small premium to PEP's $3.90/share offer the previous month.


19-Mar-20

VRL said they continue to assist PEP and BGH with their respective due diligence. Exposed to cinemas and theme parks amidst the virus - VLR was down 75% from its recent high at this time.



18-May-20

Enters into exclusive discussions with BGH.


16-Jun - 5-Aug
Various announcements extending the exclusivity agreement with BGH


7-Aug-20

Entering into an Implementation Agreement with BGH. 


28-Aug-20
FY20 results


25-Sep-20
"Film Deferral Event" under the Implementation Agreement - no A$0.08/share additional payment.


2-Oct-20
Mittleman bumps to 10.09%



7-Oct-20
Mittleman says it will vote against



8-Oct-20
Spheria, having dipped below 5% back on xx, now has 6.20%.


9-Oct-20
Scheme Meeting confirmed for the 26 November


12-Oct-20
Scheme Booklet lodged with ASIC and expected to be despatched on or before the 21 October, and the Scheme Meetings tentatively set for the 26 November.


28-Oct-20
Spheria bumps to 7.80%



4-Nov-20
Mittleman bumps to 11.24%



9-Nov-20
Uplift of A$0.12/share locked in



10-Nov-20
Mittleman bumps to 12.87%



12-Nov-20
Spheria says it will vote against



12-Nov-20
Mittleman bumps to 14.34%







Source: ASX

The New News

This morning, VRL announced it had agreed with BGH that the terms are now A$3.00 under the Structure A Scheme and A$2.95/share under the Structure B Scheme, as had been rumoured last Friday.   Spheria now intends to vote in favour of both A and B. No word from Mittleman as yet.  The Scheme Meeting will now expected to be held on the 7 December, subject to Court approval.

More below the fold.





Village Roadshow: Rollercoaster Economics

Index Rebal/Special Situations, Quiddity Advisors

Janaghan Jeyakumar, CFA

Index Rebal/Special Situations

<p>On June 1st, <a href="https://www.smartkarma.com/entities/cineplex-inc" target="_blank" data-smartkarma-citation="entities:25216:1" rel="noopener">Cineplex Inc (CGX CN)</a> provided <a href="http://irfiles.cineplex.com/Attachments/NewItems/Cineplex%20ICA%20Extension%20Release%20June%201%20FINAL_20200601121829_0.pdf" target="_blank" rel="noopener">an update on the status of Investment Canada review</a> in connection to the Cineplex-Cineworld Deal: </p><blockquote>
<p>Cineworld and Cineplex are obligated to use reasonable best efforts to obtain the requisite ICA Approval so as to enable the closing of the Transaction to occur as soon as reasonably practicable (and in any event <strong>no later than June 30, 2020</strong> (the “Outside Date”)). Receipt of the ICA Approval is a condition to closing the Transaction.</p>
<p>The process to obtain the approvals under the Investment Canada Act is ongoing and the period for review of the Transaction has been extended to <strong>June 15, 2020</strong>.</p>
</blockquote><p>With less than a month to the <em>Outside Date</em> (30th June), the Deal remains conditional mainly on the ICA Approval, fulfilment of certain covenants in the arrangement agreement (<a href="https://www.sedar.com/CheckCode.do;jsessionid=0000d67H30V7XDVByUglDY_dfw9:188setvlh" target="_blank" rel="noopener">SEDAR link</a>), and Cineplex maintaining its debt level under C$725mn (the "<em>Debt Condition</em>"). </p><p>In my previous insight, <a href="https://www.smartkarma.com/insights/cineplex-is-this-deal-broken" target="_blank" data-smartkarma-citation="insights:37588" rel="noopener">Cineplex: Is This Deal Broken?</a>, I discussed several ways of how this deal could potentially collapse. </p><p>However, the Acquirer <a href="https://www.smartkarma.com/entities/cineworld-group-plc" target="_blank" data-smartkarma-citation="entities:21872:1" rel="noopener">Cineworld (CINE LN)</a> officially remains committed to completing this Deal at least as of a month ago. Here is what Cineplex's update on May 7th said:  </p><blockquote><p><strong> Cineworld has advised Cineplex that it remains committed</strong> to closing the Transaction on or prior to the outside date of June 30, 2020 (the “Outside Date”). However, there can be no assurance that the conditions to closing the Transaction will be satisfied by the Outside Date.</p></blockquote><p><strong>So can this Deal still go through? IF it does not go through what could possibly happen to Cineplex's share price? </strong></p><p>We provide our opinions to these questions below the fold. </p>

On June 1st, Cineplex Inc (CGX CN) provided an update on the status of Investment Canada review in connection to the Cineplex-Cineworld Deal: 
Cineworld and Cineplex are obligated to use reasonable best efforts to obtain the requisite ICA Approval so as to enable the closing of the Transaction to occur as soon as reasonably practicable (and in any event no later than June 30, 2020 (the “Outside Date”)). Receipt of the ICA Approval is a condition to closing the Transaction.
The process to obtain the approvals under the Investment Canada Act is ongoing and the period for review of the Transaction has been extended to June 15, 2020.
With less than a month to the Outside Date (30th June), the Deal remains conditional mainly on the ICA Approval, fulfilment of certain covenants in the arrangement agreement (SEDAR link), and Cineplex maintaining its debt level under C$725mn (the "Debt Condition"). In my previous insight, Cineplex: Is This Deal Broken?, I discussed several ways of how this deal could potentially collapse. However, the Acquirer Cineworld (CINE LN) officially remains committed to completing this Deal at least as of a month ago. Here is what Cineplex's update on May 7th said:   Cineworld has advised Cineplex that it remains committed to closing the Transaction on or prior to the outside date of June 30, 2020 (the “Outside Date”). However, there can be no assurance that the conditions to closing the Transaction will be satisfied by the Outside Date.So can this Deal still go through? IF it does not go through what could possibly happen to Cineplex's share price? We provide our opinions to these questions below the fold. 

Leading Independent Investment Research, Morningstar, Inc.

Morningstar

Leading Independent Investment Research

Morningstar, Inc.

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. We offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors. 

Morningstar provides data on more than 500,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 16 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries, with more than $180 billion in assets under advisement or management as of June 30, 2015. We have operations in 27 countries.

Download the Morningstar Fact Sheet : http://corporate.morningstar.com/US/documents/MarketingFactSheets/AboutMorningstarFactsheet.pdf

Equity Bottom-Up

<ul><li>Each of Village Roadshow's businesses boasts leading market positions in Australia, albeit all highly leveraged to consumer discretionary spending patterns.</li><li>We are particularly attracted to the cinema exhibition division, which operates screens in Australia in joint venture partnerships, primarily with Amalgamated Holdings.</li><li>Unfortunately, we believe the moat traits of the cinema exhibition division are diluted by the other businesses.</li></ul><p><em>Analysts: Brian Han &amp; Benjamin Chan</em></p>

Each of Village Roadshow's businesses boasts leading market positions in Australia, albeit all highly leveraged to consumer discretionary spending patterns.We are particularly attracted to the cinema exhibition division, which operates screens in Australia in joint venture partnerships, primarily with Amalgamated Holdings.Unfortunately, we believe the moat traits of the cinema exhibition division are diluted by the other businesses.Analysts: Brian Han &amp; Benjamin Chan

Australia

Event Hospitality and Entertainment Limited owns and operates motion picture exhibition cinemas, drive-in theaters and film processing laboratories.  The Group also owns and operates the Thredbo Alpine Resort, Sydney harbor ferry services and the Feather -dale Wildlife Park along with operating hotels, resorts and restaurants.

Event Hospitality and Entertainment (EVT AU)

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Event Hospitality and Entertainment (EVT AU)

Village Roadshow: Rollercoaster Economics

This revised proposal is simpler and fairly priced - the IE had a fair value range of $2.03-$2.80/share. The question mark is over Mittleman's...

David Blennerhassett

Cineplex-Cineworld: The Final Countdown

On June 1st, Cineplex Inc (CGX CN) provided an update on the status of Investment Canada review in connection to the Cineplex-Cineworld...

Janaghan Jeyakumar, CFA

Village Roadshow. Cinema 1 : DVD 0

Each of Village Roadshow's businesses boasts leading market positions in Australia, albeit all highly leveraged to consumer discretionary spending...

Morningstar, Inc.

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