The stock is up 4.4% in pre-market trading, indicating that investors like the large screen theater company’s $80M transaction with Chinese investment fund CMC Capital Partners and private equity firm FountainVest Partners. The deal should expand IMAX‘s opportunities in one of the film world’s fastest growing markets. The company says it expects the transaction with CMC and FountainVest to lead to an IPO of IMAX China so it can raise funds to continue its growth there. And in a country where personal connections are critical, IMAX touts the opportunity to take advantage of CMC chief Ruigang Li’s “knowledge of the Chinese media and entertainment industry.” IMAX CEO Richard Gelfond says that it “makes sense to bring in Chinese investors to help us better address local market dynamics and further optimize our business in China, including both our core theatre business as well as new business initiatives such as the home theatre joint venture we announced last year with TCL.” IMAX China will pay IMAX a licensing/marketing fee to use the brand, potentially enabling IMAX to cut its capital spending outlays by $15M a year, Stifel analyst Benjamin Mogil estimates. He believes that could enable the company to return cash to shareholders, either through a dividend or by repurchasing shares, and “likely ensures that the company continues to receive favorable treatment regarding film quotas in the region.”
Here’s the release:
NEW YORK – April 8, 2014 – IMAX Corporation (NYSE:IMAX; TSX:IMX) today announced the investment in its Greater China business by CMC Capital Partners (CMC), China’s leading investment fund that is run by Ruigang Li and focused on media and entertainment, and FountainVest Partners (FountainVest), a leading China-focused private equity firm. The investment provides for the sale and issuance of 20 percent of the shares in IMAX China (Holding), Inc., with the intent of further strengthening IMAX’s competitive position in China.
The purchase price for the 20 percent investment is $80 million, to be paid by the investors in two equal installments. The first installment is expected to close today and the second installment will close in early 2015. IMAX China will continue to be a consolidated subsidiary of IMAX Corp.
By introducing Chinese ownership into its China subsidiary, IMAX expects the transaction to lead to an eventual initial public offering of IMAX China. Some of the key goals of the transaction include the continued expansion of IMAX’s theatre network in China, the sustained performance in the marketplace of IMAX’s Hollywood and Chinese titles, and the further strengthening of government and industry relationships within China, all of which, the Company believes, will benefit from the strong presence of the investors, including Ruigang Li’s knowledge of the Chinese media and entertainment industry.
“China is an enormously complex market in which we have accomplished quite a bit over the last 15 years,” said IMAX Corp. CEO Richard L. Gelfond. “At this juncture, it makes sense to bring in Chinese investors to help us better address local market dynamics and further optimize our business in China, including both our core theatre business as well as new business initiatives such as the home theatre joint venture we announced last year with TCL. We believe Ruigang Li and CMC, as well as FountainVest, are ideal partners whose status, leadership and expertise will be invaluable in helping us accomplish these goals.
“We expect this strategic alliance, along with the strength of our existing relationships with Chinese partners like Wanda and TCL, will help us usher in the next phase of growth for IMAX in China,” Gelfond continued. “Today’s agreement represents a joint commitment to further develop China’s movie industry by offering premium entertainment experiences, fostering the development of Chinese content and continually focusing on innovation.”
“China’s movie and entertainment industry is at a critical point of its development,” Ruigang Li, Chairman of CMC Capital Partners said. “As the preeminent investment platform in China dedicated to the media and entertainment sector, CMC is excited to be able to forge this strategic alliance with IMAX – the world’s leading innovator of entertainment technology under the leadership of CEO Richard L. Gelfond. Based on our common understanding of market opportunities, industry evolution trends, and effective strategy, CMC and FountainVest look forward to working together with IMAX towards accelerating the growth of China’s movie and entertainment sector and increasing the presence of premium China entertainment content throughout the global market.”
IMAX already enjoys strong brand recognition as a leading premium entertainment option in the Chinese market, and has become the preferred way to experience both Chinese and Hollywood blockbusters in the region. In the last several years, China has enjoyed robust economic growth and a consumer spending boom, as well as regulatory policies supportive of growth in the cinema and film sectors. Assisted by these trends, IMAX’s screen count in China has doubled since 2011 to 173 screens open with an additional 237 in backlog as of Dec. 31, 2013.
Through its subsidiaries, IMAX China will continue to have the right to conduct the IMAX business in Greater China. A nine-member Board of Directors will be established for IMAX China comprising six IMAX executives, one representative each from CMC and FountainVest and an independent member to be nominated by the newly formed board.
The Raine Group LLC acted as exclusive financial adviser to IMAX for the transaction.