Village Roadshow targeted by $1bn Pacific Equity Partners takeover

A ride at Village Roadshow’s Movie World.

Private equity house Pacific Equity Partners has snapped up a 19 per cent stake in cinema and theme parks owner Village Roadshow and delivered a conditional, non-binding and indicative proposal valuing the target company at close to $1 billion, including debt.

PEP’s bid would see all the shares of Village Roadshow acquired by way of scheme of arrangement at an indicative price of $3.90 per share, a 22 per cent premium to the Wednesday closing price.

The bid for Village Roadshow, excluding debt, is worth $761.2m.

By 2.10pm (AEDT) Thursday, Village shares were trading at $3.77, a 57c jump since news of the bid emerged.

Village Roadshow said its board believed it was in shareholders’ interests to hold talks with PEP to determine if a firm offer could be made, and had agreed to open its books for due diligence.

It said its suitor had indicated it was willing to pay a fully cash price or a combination of cash and shares in a newly incorporated company. Village Roadshow Corporation, its largest shareholder, and Pacific Equity Partners also agreed on a call option over about 19 per cent of the company’s shares.

Village Roadshow is a famed, listed Australian media and entertainment company and its interests span cinema, theme parks, film production and distribution.

It owns the Gold Coast theme parks Movie World and Sea World, which are rivals to the Ardent-owned Dreamworld.

Village Roadshow is also one of the country’s largest cinema operators and combined with joint venture partner Event Hospitality and Entertainment has nearly 600 screens across 58 sites in all Australian states.

The listed company’s largest shareholder is Village Roadshow Corporation, which is run by Robert Kirby, John Kirby and Graham Burke.

But the brothers have been in dispute about the company’s direction, with John Kirby pushing for boardroom changes and for a more focused corporate strategy.

The campaign drew in major shareholders who also wanted change, opening the door for PEP.

Clark Kirby, former head of the theme parks division, was named chief executive of Village Roadshow in mid-2019 to succeed Graham Burke next year. Mr Burke had worked for Roc Kirby, Village Roadshow’s founder, from the age of 14 as a ticket collector and became the inaugural CEO when the company went public.

With the change, executive chairman Robert Kirby, Clark Kirby’s father, said he would move aside but remain on the board, while a nonexecutive chairman would be appointed and the deputy chairman role held by his brother John Kirby would be dissolved.

Robert Kirby is chairman of shareholder Village Roadshow Corporation, while John Kirby and Mr Burke are directors.

Clark Kirby.

Village Roadshow confirmed it had received a conditional, non-binding and indicative proposal from PEP.

The company said the board had urged shareholders to take no action on the bid while it was being considered.

PEP has already made substantial strides and has a call option over about 19 per cent of the register after striking a deal with the family-controlled vehicle, the Village Roadshow Corporation.

PEP has flagged that it will offer full cash consideration or a combination of cash and scrip, subject to caps and scale-back provisions, in a new acquisition entity in which the Kirbys could participate.

The takeover is subject to due diligence, Foreign Investment Review Board approval and a recommendation of Village’s independent board committee.

Village said in a statement that it “believes that shareholders’ interests are best served by conducting exploratory discussions with PEP to determine whether a proposal that is in the best interests of Village shareholders can be put forward”.

The company said it was prepared to provide PEP with due diligence information, subject to an appropriate confidentiality agreement, but cautioned there was no certainty that an acceptable proposal would eventuate.

PEP is familiar with the cinema business, previously owning cinema chain Hoyts, which it sold for $850 million to China’s Dalian Wanda Group in 2014.

In 2007, PEP acquired the shares in Hoyts - a deal which valued the company at $440m.

PEP is being advised by Highbury Partnership while Village Roadshow usually calls on the services of UBS.

Among Village Roadshow’s other theme parks are Paradise Country and the Australian Outback Spectacular, with the theme parks division attracting five million guests annually.

It also owns a majority stake in Wet n’ Wild Las Vegas.

The approach by PEP comes after challenges for Village Roadshow in the past two years, including paying down debt while rolling out costly Top Golf courses.

In June this year, Village Roadshow shares plunged 10 per cent on the back of a badly received company update.

Village Roadshow swung to a net loss of $6.6 million in the 12 months through to June, though net debt was cut by 35 per cent to $219.6 million.

The company’s shares, which were halted before the market opened Thursday, have rebounded in the current quarter and are up 18 per cent so far in 2019.

With Dow Jones