Imax: How to Ruin a Great Company

The Stock Masters submit: If you haven't seen a movie on an Imax (IMAX) screen, you haven't experienced the way a movie should be shown. Today you pay $10 just to watch a movie at the theater, if you don't sneak in candy or refreshments add another $15, (but you know you're going to pony up $8 for popcorn) and then get to watch your movie on a tiny screen in a theatre that's no bigger than your 5th grade classroom. To get the best bang for your buck, see it on Imax. I saw Batman Begins last year on Imax and was not disappointed. Perfect picture, unbelievable sound system, and on a screen that was bigger than a blue whale, it was worth the $12 for admission, and I did save money by sneaking in my own snacks.

Imax the company has had a colorful 2006: In March they announced the company was up for sale and the stock price reacted, sending shares over $10. Not bad considering the stock was trading in the $7.50 range in January. May came around and IMAX released a weak Q1 06, they missed by -$.13 cents but Q4 05 was right on target at +$.26 thanks to Polar Express, which grossed over $45 Million in Imax theatres. However, the share price retreated. Investors were beginning to believe that commercial movies on Imax attract more movie goers, and with Imax installing its technology and opening more Imax theaters, things were looking up. By late July it was reported that Sony (SNE), Elevation Partners (including Bono from U2) and CJCGV were in talks to purchase Imax, the stock went above $10 again. Everything was going right for Imax, analysts were thought Imax could sell for up to $14 a share at a cost of $700 million.

Then in August everything went wrong. The company's Q2 06 press release was one of the worst press release in history. I wonder what went through their minds when they put that statement together. Was it something like this?

Richard L. Gelfond (Co-Chairman and Co-Chief Exec. Officer) - "Well it's not so bad, so what we didn't find a buyer and we've got some accounting issues, who doesn't? We had a great quarter!"

Bradley J. Wechsler (Co-Chairman and Co-Chief Exec. Officer) - "You're right Dick, it's no big deal, besides, we said we are exploring 'strategic alternatives', that sounds good doesn't it?"

Richard L. Gelfond - "You bet, those SEC Inquiries are garbage. We'll just fire someone if things go bad, that always works."

The stock fell %41 on August 10th, and the lawsuits have been coming ever since. It feels like Enron all over again, and I can only imagine the pain of share holders. I jumped out of Imax back in March, and was kicking myself in July, but when August came, I was a happy camper. The worst part of it all is the impact to the share holder and investors of Imax that were swayed to believe one thing, but told another thing. The analysts have downgraded the stock one after the next and Wall Street is taking a back seat to this stock, recommending everyone stay clear and let the SEC investigation take its course. Since August 10th, the stock has fallen drastically and is hovering in the $4.50 range, a long way from the $10+ it was at just a few weeks prior.

How could such a bright and up and coming company tank over night, how could the board of directors and management let their wonderful investment fall to the wolves?

Betting on Imax to pull out of this and attract a buyer is equivalent to taking your money to the horse tracks, better yet, the dog tracks. The odds would pay well if our little dog Imax can pull out a victory, probably 6 to 1, so that would be great payday. I for one would like to see them win because they have a great product that millions of people enjoy and it could continue to be a prosperous business under new management. But betting at the dog tracks, it's anyone's game and you've got to compete with all those other dogs at the race track. Here's a list of dogs (sometimes called lawyers) besides Santa's Little Helper and Snoop Dogg who are all betting Imax finishes in last place:

Murray, Frank & Sailer LLP Has Filed a Shareholder Class Action Against IMAX Corporation

Dyer & Shuman, LLP Encourages Persons Who Purchased IMAX Corporation Common Stock Between February 17, 2006 and August 9, 2006 to Consider Their Legal Options as Potential Class Members - IMAX

Chimicles & Tikellis, LLP Files Class Action Lawsuit Against IMAX Corporation

Wechsler Harwood Files Class Action On Behalf of IMAX Corporation Investors – IMAX

And the list goes on and on...

I guess it just goes to show you it's a dog eat dog world.

IMAX 1-yr chart:

Article written by Frank Lara Jr.

Comments

[DanielVachon]

Imax was trading at 9.75US before announcing it was for sale Imax value was then at $9.75US X40M shares=$390M US

Now we trade at $4.50US X40M shares=$180M US

The sale was for $600-$700 US right....lets say
$600M with some Sony shares..LOL


Sentiment : Strong Buy