Hollywood Media: Waking Up From A Coma

| About: Hollywood Media (HOLL)

It has now been two years that the stock of Hollywood Media (NASDAQ:HOLL) has been in a coma but it now appears that something is pushing the stock price higher. The stock is up 60 percent in about 6 weeks. While the stock price was doing absolutely nothing for two years, the value was always there. I wrote about it in Ultimate Value Finder several times including in the most recent September 2013 issue, which included some significant changes to the valuation fundamentals.

Previously, I said that Hollywood Media owned three main assets:

  1. It has $10 million in cash with no debt.
  2. It owns a $15 million note from previously sold businesses. This note pays 12 percent interest.
  3. It owns 26.2 percent of MovieTickets.com.

On August 8, 2013, the $15 million note from previously sold businesses was prepaid and the company received $16.6 million in cash. This was a big deal because some investors were questioning whether the note was ever going to be repaid in full. Also, $16 million in the bank is more valuable than a promise from someone who is obligated to pay $16 million.

As a consequence of this prepayment, Hollywood Media owns two main assets:

  • It has $26 million in cash with no note.
  • It owns 26.2 percent of MovieTickets.com.

Before the $16 million cash prepayment, Hollywood Media had a market cap of $26 million. Now, with the prepayment, the company has $26 million in the bank. As a result, the market sent the stock price higher to reflect the new fundamental reality.

But, there is something else happening. As you know, the company was involved in a lawsuit. You can read about it below. There is some talk among certain investors that the parties of the lawsuit might be coming to some kind of agreement.

As this point, what is going on has not yet been made public, but it appears that someone might know something because the stock price is soaring.

About the Lawsuit

Several years ago, AMC Entertainment, another minority owner of MovieTickets.com, acquired Lowes Cineplex Entertainment Corporation, one of the largest movie theater chains. At that time, Fandango, a competitor to MovieTickets.com, served Lowes theaters. Usually, after AMC acquires other theaters, it transfers them from Fandango to its minority-owned MovieTickets.com. However, with Lowes, AMC was not able to do so after the merger because of the contractual agreement between Lowes and Fandango. This agreement expired in April 2011 and was extended to September 2011.

The reason why the transfer did not happen yet is because of a disagreement between AMC and the other owners of MovieTickets.com. Because AMC is legally obligated to transfer Lowes theaters after the contract with Fandango expired, it is in violation of the agreement with the other owners of MovieTickets.com. Consequently, Hollywood Media and National Amusement, the other major owners of MovieTickets.com, are suing AMC for not complying with the agreement. If AMC does not comply, it may face severe financial consequences that could be detrimental to its business.

New 5 Percent Owner

On October 23, 2013, we found out a new 5 percent owner. It is ADW Capital Partners run by Adam Wyden. Here is the link to the 13-G.

Disclosure: I am long HOLL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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