What scared away all but one of the potential bidders in RealD? That’s still unclear, although a new SEC filing from the 3D technology company cites others’ concerns about “perceived risks around consumer appetite for 3D films,” as well as fears that theaters might not renew their deals to license RealD technology.
Early this month RealD wrapped up a hunt for a buyer, which began in February, by accepting Rizvi Traverse Management’s offer of $551 million, including assumption of debt.
A preliminary proxy ahead of a shareholder vote on the deal says that 71 companies expressed an interest after February. Of that group, 36 signed non-disclosure agreements to receive confidential financial information. By mid-April just one strategic buyer and four financial ones submitted non-binding initial indications of interest in buying RealD.
Over the summer all but Rizvi backed away.
B. Riley analyst Eric Wold says it appears that most of the bidders were scared off by something they learned “that was not available to those outside the company.”
That might have included a fear that the three biggest theater chains might not renew their contracts, or demand big concessions, in 2018. Wold says he “would not be surprised if that played a role in potential buyers’ decisions to drop out of the process.”
He was struck that activist investor Jeffrey Smith’s Starboard Value declined to participate in the auction after making a non-binding offer of $12 a share in October 2014. Now, a sale to Rizvi “should prove to be the closure of this story.”
RealD CEO Michael Lewis, who controls about 12.5% of its shares, has agreed to rollover his shares to Rizvi. He’ll become a member of its board of managers, and one of its officers. The new gig guarantees an annual base salary of $1 million, a target bonus of 120% of base salary, and an opportunity to participate in an equity compensation plan.
He also stands to benefit from a $7.6 million so-called golden parachute since, under the terms of the deal, RealD execs “will be terminated by the Company without ’cause'” when the merger takes place. Lewis’ take consists of $3.9 million in cash, $3.6 million in equity (mostly unvested stock options and awards), and $12,913 in benefits — primarily 18 months of COBRA health coverage.
The buyers also agreed to offer him a $6 million revolving loan.
At the meeting to endorse the deal, shareholders will be able to provide a non-binding advisory vote on the compensation for Lewis and other top executives.