Friday, November 28, 2008

Introducing Premier Exhibitions

Remember the trips to the exhibition when you were young?(yay!). Remember the trips to the museum?(Honey, we have visitors. We ought to take them to the museum, it'd be so educational). Combine the two into one experience and you've got Premier Exhibition's business.

Premier's a kind of a hybrid pick. It's a part special situation, part (possibly) long-term hold. Let's look at the special situation part first. Premier's most significant asset is its fully owned subsidiary, RMS Titanic Inc. (http://www.titanic-online.com). The RMS Titanic Inc. is valuable because it is the only entity in the world that is allowed to look for and recover items from the sunk Titanic. See the FAQ on their website for more detail. They have recovered about 5500 artifacts from the Titanic so far which are extremely valuable. Just how valuable are they to Premier? You'll be sorry you asked. The answer to the question of how valuable the artifacts are depends on who has legal ownership of the items.

1. Of the 5500 artifacts, Premier has the title to 1800 artifacts, free and clear, awarded to it by a French court. This ownership is not in dispute and Premier estimates the fair value of these artifacts at $46 million.

2. Premier has "salvor-in-possession" status for the rest of the artifacts. What does this mean? This means that Premier essentially is the custodian of the artifacts until a decision is made regarding their ultimate destiny. Following a court order last October, Premier moved the courts for a "salvage award" last December. What's a salvage award, you ask? It's compensation for the act of salvaging property from a vessel in peril. 

There's two ways a salvor can be compensated:
a. In cash, based on the Blackwell factors (you can look these up, if you are interested. I now know more maritime salvage law terms than I ever wanted to know, which was nothing).
b. "In-specie" which means that the salvor gets ownership of the recovered property with an attached set of covenants that they must agree to abide by.  

Once Premier moved the courts for a salvage award, the US government joined the case as a "friend of the court". Outside of Premier, the US government is the most interested party in the Titanic wreck site. The US government believes that an "in-specie" award with the necessary covenants is one possible appropriate mechanism of compensating Premier (http://www.prxi.com/pdf/rmstorder.pdf, p4). As of September 15 of 2008, Premier had submitted revised covenants that it would adhere to if it were granted ownership of these artifacts via an "in-specie" award. There isn't a date set for the court's ruling on this matter, but it looks like Premier is virtually certain to be granted an "in-specie" award, subject to reaching an agreement wrt to the covenants with the US government.
 
Premier's estimate of the fair value of these artifacts: > $100 million. See Premier's investor presentation from earlier this year for fair value estimates of the artifacts they own and the artifacts that are currently being adjudicated on by the court: http://www.prxi.com/pdf/merriman.pdf (p7)

To summarize:
Fair value of artifacts owned free and clear: $46 million (carried at cost of $3 million on Premier's books)
Fair value of artifacts that are currently under adjudication: > 100 million

The cash flows from operations for the business for the last 5 years (in millions, 2004-2008) : ($1.577), (.051), 2.13, 11.476, 17.142. Premier had 17.481 million in cash and marketable securities as of Feb 29,2008 and no debt, compared to cash and marketable securities of $547,000 as of Feb 28,2004.

How much is the entire company selling for today? How about $20.17 million? Intrigued? You ought to be. 

Disclosure: Long Premier at prices much higher than today's. Let's leave it at that while I go see my therapist about that purchase.

Often wrong but seldom in doubt,
Ragu

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