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 owns about 1.7 percent of Imax China shares, said it would vote against the proposed deal to take the Chinese unit private, which was first revealed on July 12, 2023 .
Imax currently has approximately 770 branded commercial locations in China, the most of any market in the world and a key part of its international expansion beyond North America. The proposed deal to gain 100 percent control of Imax China will see the Toronto-based parent company acquire 96.3 million shares currently traded on the Hong Kong Stock Exchange, in a deal worth $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 an attractive offer,” the cinema technology company said in a statement on Monday.
But Letko Brosseau claims that research shows the proposed offer “significantly undervalues the company and Imax Corp. unfairly benefits minority investors.” The Canadian fund added that Imax is being “opportunistic” in taking Imax China private amid a box office recovery from the COVID-19 pandemic and is trading at a “very depressed” share price of 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 the potential for strong earnings growth and cash flow generation in the future,” Letko Brosseau argued.
In turn, Imax argued that Imax China’s low share price is due to low interest from institutional investors in China in response to slowing economic growth and consumer spending in the broader economy. “While it is uncertain whether Imax China’s share price will return to pre-pandemic levels, the IFA (Independent Financial Advisor) believes that the current geopolitical and macroeconomic overhang means that pre-pandemic conditions do not reflect of the current circumstances,” Imax added.
Once approved, the privatization deal will give Imax full control of its operations in China, which was first listed in Hong Kong in 2015 when its parent company retained a 69.8 percent stake in Imax China Holding. Taking full control of the subsidiary comes as China has seen a revival in cinema box office due to the pandemic.
Once the transaction closes by the end of the year, Imax said Daniel Manwaring will remain CEO of its China unit, which will continue to be headquartered in Shanghai, with offices in Beijing.