More Info on Potential Imax Takeover/Merger

It looks like some news might finally be imminent for Imax and their potential takeover/partnership arrangements. Imax's management offered up the company for strategic partnerships months ago, and there has been a several round bidding process taking place behind closed doors to decide what will happen.

Today, news came out in the Globe and Mail (the biggest Canadian newspaper -- Imax is a Canadian company) that the process is possibly nearing completion and that four interested parties are still in the running.

The article only quotes analysts and investment bankers, as the company itself has been mum for months. It really couldn't come at a better time with Superman Returns doing great business at Imax theaters around the world, The Ant Bully on deck to make an impact as a 3D animated Imax, and the news that Spiderman III will be a simultaneous Imax release next summer.

Essentially this will come down to whether Imax prefers a private equity buyout that might keep management in place, or a merger/acquisition or a very deep partnership with a studio that would give them less independence but a stronger industry presence. The Globe asserts that there are two private equity funds and two companies involved right now, which ought to be enough to get some good terms.

I'm not committed to Imax in the long term -- I think they represent great potential for the theater business and are undervalued based on that potential, but I'd be happy to sell out at a nice premium. The rumor mill has a buyout at between $600-700 million, which would be a nice spike over their current enterprise value of just over $530 million (market cap of $430+ million and about $100 million in net debt). That translates to at least $12 a share, possibly as much as $14 or 15. In addition, analysts now believe that we're entering the final innings, so we might see some real news on this by the time they release earnings in about two weeks.

Thursday's price reflects that newspaper article, with a nice 8% bump, but the market is clearly still discounting this. If a deal happens, the pop will be very quick and significant. If it doesn't happen and no news comes from the company, we're probably back to $9 in August.

IMAX 1-yr chart:

Comments

[jolly singh:]

I already own Aug 12.50 Calls ar .10 and Sept. 10 CALLS at 1.30. i may buy 10 PUT if it reaches 11.50 before buyout and PUT reaches .10 .

2006 Jul 30 11:42 PM

[Travis Johnson:]

I haven't dabbled in Imax options during this takeover season, but if I did I'd be tempted to do something quite similar -- hope it works out for you.

2006 Jul 31 11:38 AM