Friday, February 6, 2009

Management changes at Premier

A couple of weeks after Sellers Capital delivered sufficient shareholder consents to elect their nominees to Premier's board, Premier acknowledged their election:

http://www.sec.gov/Archives/edgar/data/796764/000095015209000924/l35343ae8vk.htm

Arnie Geller has been terminated as CEO, although he is still on the board, a position that leaves me feeling uncomfortable. Sellers will serve as non-executive chairman without compensation, as promised. One of the elected directors, Christopher Davino, will serve as Interim President and CEO, for a period of between 4-6 months. He comes from XRoads Solutions Group, a corporate restructuring management consulting company. Meanwhile, the newly constituted audit committee will continue to investigate the Sarbanes Oxley violation allegations, allegations that were withheld from Sellers Capital at the time that it discussed bringing back Geller as CEO for a second term.

I am glad though that this consent solicitation is over and we have management in place that Sellers chose. I haven't always found myself nodding in agreement with Sellers during the consent solicitation process but the outcome, which was critical, turned out alright. It is vital for Sellers to address the looming liquidity issues with shareholders. Previous management had said that they'd be ok till the middle of 2009. Their available line of credit, down from $10 million to $7.1 million at the end of the last quarter, goes down with deteriorating operational performance. 

The change in management will lead to a much greater focus on better aligning costs with declining attendances, better corporate governance and more transparent and conservative accounting. Sellers, in my opinion, has essentially staked his legacy on this position. We'll see how it pans out for him and the rest of Premier's shareholders.

Often wrong but seldom in doubt,
Ragu

4 comments:

  1. Ragu,

    Thanks for keeping us all updated on Premier-I am always a sucker for activist investors.

    This is one of those situations that I continue to look at, wondering what will happen. Premier was once a great company, and I am presently having trouble wrapping my head completely around the situation (and valuation at hand.

    The coming months will be interesting, not just for the macro-economy, but perhaps more so at Premier!

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  2. Jeff,

    Welcome. Looks like you're a kindred soul re. activist investors. While the valuation of the underlying business itself is tricky, the value of the assets is not in question(unless you believe that prior management was dishonest in their claim of fair value for those assets). Premier is worth a lot more on the basis of their assets provided the business manages to be atleast cash flow neutral. They aren't, currently. A decision in the salvage award trial would certainly remove a lot of the uncertainty surrounding the assets that they don't have the title to. New management will move to cut costs and close down unprofitable locations. I am not sure if this will be enough to stop the bleeding. Plus, there's the long-term lease at the Luxor. It'll be interesting to see if they provide a breakdown of the profits(if any) from the exhibits there and whether those profits will be enough to offset the lease payments.

    In any event, Sellers has got his wish. I suspect we are about to find out just how much of Premier's business performance had to do with management incompetence vs. the faltering economy. This has certainly gotten way more interesting than I ever wanted.

    --Ragu

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  3. I don't really think that management lied about the price of the assets-they were just incompetent... It always shocks me how quickly a badly run business can burn through cash/intrinsic value that took years to build up.

    My reservation lies in the fact that the company's assets are things (that to me), have little worth. By that I mean, a piece of the Titanic's dishware doesn't really do anything to make more money. Granted, their exhibits can generate cash, but these, in addition to selling of titanic artifacts, rely greatly on public interest in the product-which I would imagine is waning.

    Did you include this in your valuation and discounting or are you betting on Sellers? (which is a question that I ask, not to try to poke/prod you, but something that I genuinely want to learn about)

    Having read some on Sellers, I would say that if one person could make it work, it'd be him.

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  4. Jeff,

    No issues with the questions. Re. the Titanic assets: They can't be sold piecemeal. They'd have to go as an entire collection to an entity like a museum. I can imagine entities that'd want to get their hands around the Titanic collection, seeing as they are one of a kind with no one else having the ability to go down to the Titanic to collect more except Premier. That's why it's important to have the decision on the salvage award handed down. The timing of the verdict is uncertain, although it's clear that Premier will receive either the money or the artifacts. The fair value of the assets(owned + those under adjudication) amount to $150 million. I discounted this by 50% to account for any risks relating to the verdict(which I judged to be very little) and the subsequent monetization. I essentially looked at the business as a long-dated call option(which may become extremely valuable if the 3 new exhibitions are successful) in this case. At the time of my purchase, it seemed like Mr.Market was essentially attaching no value to the business at all. Looked like a good bet at the time of making it.

    Re. Sellers: He is intelligent, determined, honest and is the largest shareholder. I don't believe he has been in the position of turning around business operations before, so it will be interesting to see how this plays out.

    --Ragu

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