Monday, April 20, 2009

Sellers Capital offered buy-out at Premier

See the press release here. First, the title. It's blatantly misleading. This is not an offer for the RMS Titanic Inc., a wholly-owned subsidiary of Premier. Second, the value of the offer as it relates to the Titanic business of Premier is not $40 million. It's $25 million for the rights to exhibit the Titanic over a "multi-year" period and $15 million for Sellers Capital's 16.3% stake in the company(@$3/share). Third, far as I can tell, Contango Oil and Gas(MCF) has no beneficial interest in Premier. Fourth, you can't pay off the largest shareholder and expect to get all board and executive positions in return. The board of directors is not Sellers Capital's to sell. I'll stop here.

Later in the day, Premier issued a press release clarifying the offer. To summarize:

a. Premier gets $25 million over a five-year period, in installments of $5 million each, in exchange for the rights to exhibit the Titanic. Premier also gets an undisclosed percentage of merchandising/television revenues. This also means that Premier keeps the Titanic assets, both the ones that are owned outright and the ones currently under adjudication.
b. Sellers Capital is being offered $3/share to give up their stake in Premier.
c. Michael Harris, the principal of Wlm Inc, is asking for 3 board seats and control of all executive positions. This is in addition to 1 million shares and an undisclosed number of options.

It is not clear whether the offers to Premier and Sellers Capital are tied in any way. The offer to manage the Titanic assets is intriguing.

The good:
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Quite clearly, there is a lot to like about a $5 million royalty payment every year for the next 5 years. No costs, no capital investment. So long as Wlm Inc. is good for the money, this is a deal worth considering.
It seems like Premier would give up the exhibition at the Luxor in Las Vegas (there are no exclusions in the offer). This would take the associated annual lease payments, amounting to $3.3 million currently, off Premier's hands.
Also, it's worth noting that the offer to manage the Titanic assets comes from one of the co-founders of the RMS Titanic Inc who runs a Titanic attraction in Orlando. Therefore, it's reasonable to believe that the payments being offered to Premier are not extravagant. I'd suggest that this offer goes to show just how profitable the operation of the Titanic exhibits alone currently is or is likely to be as we approach the 100th anniversary of it's sinking in 2012.

The bad:
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The 1 million shares (at what price anyway?) represent about 3.4% of the 29.2 million shares outstanding as of January 5, 2009. This disregards about 4.3 million options that were out of the money as of that date. The effect of the dilution is worse if you consider the shares undervalued as of today and the effect of the "undisclosed" number of options that Harris is seeking.
The other problem with the Titanic offer is that the $5 million payment for the first year is likely not enough to offset the revenue hole caused by the lack of exhibition days later this year. G&A expenses alone were at $6.4 million for the most recent quarter. This means further dilution if Premier were to raise additional capital.

As for the offer to buy-out Sellers Capital, it's worth remembering that in addition to running a hedge fund, Sellers is Premier's Chairman. Fiduciary responsibility would quite clearly dictate that he not seriously consider any offer that is not being offered to all shareholders. Based on my estimation of Sellers' character, I'd expect that the buy-out offer will be rejected.

For those curious about Michael Harris, he is one of the co-founders of the RMS Titanic Inc. and was terminated from his employment for "misappropriating" $70,000 of the company's funds. See the note on page 10 in the 2004 10-K. Much more colourful personality and character insights can be gleaned from a Google search.

Often wrong but seldom in doubt,
Ragu

4 comments:

  1. Ragu,

    What are your thoughts on latest 12 million financing from SC ? Isnt it massively dilutive (could be 16 million more shares ?)

    Latest Quarter results indicate they have been able to curtail costs although SGA is still too high. Also encouraging to see insider buying.

    regards.
    Qleap

    ReplyDelete
  2. Qleap,

    Could you please email me (first name@gmail)?

    Thanks,
    Ragu

    ReplyDelete
  3. These offers are being made on a hope and a prayer. Funding is tied to ongoing litigation and an LOI that cannot be verified. On 24 March 2009, it was revealed that the fate of 5,900 artefacts retrieved from the wreck will rest with a US District Judge's decision.[77] The ruling will decide whether the artefacts should be placed in a public exhibit or in the hands of private collectors. The judge will also rule on the RMS Titanic Inc.'s degree of ownership of the wreck as well as establishing a monitoring system to check future activity upon the wreck site.

    ReplyDelete