US investor Mittleman Brothers slams ‘bargain’ $468m Village Roadshow takeover proposal by BGH Capital

In our view, the offer is ‘highly conditional, unusually complex, and blatantly opportunistic’, Mittleman said.

“We are surprised that the careful consideration the board states that it has given this proposal has resulted in something other than a polite no thank you.” Picture: Annette Dew

US activist investor Mittleman Brothers has struck a blow to private equity company BGH Capital’s efforts to bring down the curtain on Village Roadshow’s life as a public company, labelling its $468m takeover proposal opportunistic and criticising it for taking advantage of the coronavirus crisis.

In a strident attack more common in US proxy battles, Long Island-based Mittleman Brothers chief investment officer Chris Mittleman labelled BGH’s takeover play as blatantly opportunistic, adding it was a “shameful act” under the circumstances.

Mittleman Brothers, which has just over 5 per cent of the register, said it was greatly concerned that the leisure company’s board had determined to engage with BGH about its non-binding proposal for the company.

The US group said the proposed deal, at up to $2.40 a share — though less if cinemas and theme parks stay shut — would deprive minority shareholders of their equity interest at a price that represented a 45 per cent to 40 per cent discount to the $4 a share indicative proposal made by BGH in January.

“In our view, the offer is highly conditional, unusually complex, and blatantly opportunistic,” Mittleman said. “It is also unfairly discriminatory against minority shareholders.”

“As such, we are surprised that the careful consideration the board states that it has given this proposal has resulted in something other than a polite ‘no thank you’.”

Mittleman said the tragedy of COVID-19 and its unprecedented economic consequences are well known, but the event was “likely transitory, and any effort to acquire the shares of minority shareholders at a massively markdown price” would be a “shameful act under the circumstances”.

The outburst may see minority shareholders galvanise against the knockdown price proposed by BGH to take out the near 60 per cent of minority shareholders in Village.

BGH has proposed a dual structure that would leave the founding Kirby family and former Village chief Graham Burke invested in an unlisted company, which would be run by family scion Clark Kirby.

Under BGH’s main plan, the three principals of the 40.4 per cent shareholder Village Roadshow Corporation — John Kirby, Robert Kirby and Graham Burke — would swap their listed Village interests for shares in the privatised vehicle.

Robert Kirby and Graham Burke intend to take shares only, while John Kirby plans to take half in cash.

Minority shareholders would receive mainly cash as few shares would be left in the privatised vehicle that would be exposed to a recovery. A back-up plan is a scheme of arrangement, with all shareholders having the option of receiving shares or cash.

The abrupt halving of Village’s operations, and mounting debt that will hit $315m by the end of June, may have influenced the board to grant BGH exclusive due diligence.

But rival private equity house Pacific Equity Partners had earlier shown interest and an auction might be spurred by the US group’s intervention.

In a shot across the bows of the UBS-advised board, Mittleman said it intends to also share its views with other investors. Pre-crisis, it had said the company should not be taken over for less than $5.42 a share.

Morningstar analyst Brian Han also said BGH’s latest proposal was opportunistic, saying it was devoid of any control premium to the analyst’s $2.50 fair value estimate.

Mr Han said the bid was also “littered with conditions”, with up to 20c per share depending on the company’s theme parks and cinemas.

Morningstar warned that minority shareholders “could be at risk of parting with their shares too cheaply based on a once-in-a-generation shock, albeit the pace of recovery from it is uncertain”.

The implied $740-780m enterprise value of the revised offer equates to just six times Village’s pre-pandemic earnings, which were affected by a weak film run and its theme parks still suffering from the fallout of the Dreamworld tragedy.

Morningstar estimated BGH’s revised offer equated to just five times in the recovery period.

Village shares closed flat at $2.10.