Facing opposition from a Canadian investment fund, Imax has defended a proposed $124 million deal to acquire a 28.5 percent stake in its Shanghai-based Imax China unit that it does not already own.
On Friday, Canadian investment fund Letko, Brosseau & Associates, which holds around 1.7 percent of Imax China shares, said it will vote against the proposed deal to take the Chinese unit private first unveiled on July 12, 2023.
Imax currently has around 770 branded commercial locations in China, the most of any market worldwide and a key component of its international expansion outside of North America. The proposed deal to take 100 percent control of Imax China will see the Toronto-based parent acquire 96.3 million shares currently trading on the Hong Kong Stock Exchange in a deal valued at $124 million in cash, or HK$10 per-share.
“Imax Corp. reiterates its belief that the transaction is in the best interests of Imax China shareholders and represents a compelling offer,” the cinema technologies company said in a statement on Monday.
But Letko Brosseau contends its research indicates the proposed offer “significantly undervalues the company and unjustifiably benefits Imax Corp. at the expense of minority investors.” The Canadian fund added Imax is being “opportunistic” in taking Imax China private amid a box office recovery from the COVID-19 pandemic and is moving on a “very depressed” share price at HK$7.17.
“At HK$10 per share, the offer is less than 60 percent of what the shares were trading before the global pandemic. The offer does not reflect Imax China’s historical level of profitability and its potential for strong earnings growth and cash flow generation going forward,” Letko Brosseau argued.
Imax, for its part, argued the depressed Imax China unit stock price is due to low interest by institutional investors in China reacting to slowing economic growth and consumption spending in the wider economy. “While it is uncertain if the Imax China share price will return to pre-pandemic levels, the IFA (independent financial advisor) is of the view that the current geo-political and macro-economic overhang means that pre-pandemic conditions do not reflect the present circumstances,” Imax added.
Once approved, the privatization deal will hand Imax full control of its business in China that was first listed in Hong Kong in 2015 when the parent company retained a 69.8-percent stake in Imax China Holding. Taking full control of the subsidiary comes as China has seen a rebound in theatrical box office coming out of the pandemic.
Once the transaction is completed by the end of the year, Imax said Daniel Manwaring will remain CEO of its unit in China, which will continue to be headquartered in Shanghai, with offices in Beijing.
