BGH Capital sweetens takeover offer for Village Roadshow

A private equity house looks set to end Village Roadshow’s rollercoaster ride as a listed company.

Village’s Warner Bros. Movie World on the Gold Coast.

Theme park and cinema company Village Roadshow has taken another step towards privatisation, with private equity suitor BGH Capital significantly bumping up its offer for the company to as much as $3 per share.

Its shares surged on the news, closing up 17.1 per cent, or 42c on Monday at $2.87.

Village has been in play since before the coronavirus pandemic struck when BGH was circling at $4 per share, but the company‘s Queensland theme parks were hit and cinemas are now under more immediate threat from streaming services.

The sweetened takeover deal is worth up to $586m for shareholders and values the overall company, including debt, at about $900m.

The company is backing the bid, citing the continuing fallout from a pandemic that has hit tourism and entertainment spending and which has forced it to borrow heavily, with projections that debt could hit $380m next June.

BGH is making two separate proposals for the company, one at $3 per share, and a second offer at $2.95 per share, with the founding Kirby family and former chief executive Graham Burke, who control about 40 per cent, only able to vote on the second scheme.

The price is a big jump from the initial previous scheme, which was priced at $2.32 per share for the higher plan and $2.22 per share for the second offer.

Village and the private equity company have also locked in the support of Spheria Asset Management, which holds a stake of about 7.8 per cent, giving the first $3 per share scheme a chance of being voted up.

Dissident investor US-based Mittleman had previously rejected the prospect of a bid around $3 per share, saying that Village was worth more than $5 per share. It will now come under scrutiny over how it will vote its 14.34 per cent stake.

Village‘s independent directors, advised by UBS and led by former News Corp and Foxtel chief Peter Tonagh, have unanimously recommended shareholders vote for each alternative scheme, saying the BGH deal is in the “best interests” of shareholders in the absence of a superior proposal.

“The BGH transaction provides the opportunity for all Village shareholders to realise an attractive cash price for all of their Village shares, in a very uncertain operating environment,” the company said.

The BGH offers are also above independent expert Grant Samuel‘s valuation of Village in the range of $2.03 to $2.80 per share.

Village will now work with ASIC and the Federal Court on documenting the fresh deal and Village will push back a meeting planned for this week until December 7.

Village said in the financial year to the end of October, it had generated positive operating cash flow of about $5m on a pre-capital expenditure basis, which also took into account it getting the JobKeeper and other government grants. But it had negative operating cash flow once capital expenditure was taken into account

At the end of October, Village‘s net debt was about $311m, comprising $370m of gross debt and $59m of cash. The company had $50m of undrawn facilities.

Village expects operating cash flow before for the eights month to the end of June 2021 to be negative with outflows in the range of $5m to $15m.

It also plans to spend a further $55m on upgrades by mid-2021 so debt will soar to $370m-$380m. All up, Village’s net debt will have leapt by $152-$162m due to the crisis.