The acquisition of Imax might signal the end of the 3-D craze. $40 is rich, particularly when the stock was trading below $5 fifteen months ago. I would not want to own screens.
2nd UPDATE: Imax Shares Up On Takeover Report; Declines Comment
By Caroline Van Hasselt
Of DOW JONES NEWSWIRES
DECEMBER 31, 2010, 2:02 P.M. ET.
TORONTO (Dow Jones)--Canada's Imax Corp. (IMAX, IMX.T) declined to comment on a U.K. media report that Sony Corp. (6758.TO, SNE) is considering a $40-a-share bid for the big-screen movie company. The stock jumped as much as 20% on the news.
Citing unnamed people in the entertainment industry, U.K. newspaper the Daily Mail reported Friday that Imax Chief Executive Richard Gelfond and Chairman Bradley Wechsler are believed to be pushing for a sale to Sony, although Walt Disney Co. (DIS) could also be interested.
"The first Imax became aware of these rumors was through the Daily Mail article," Imax spokesman Whit Clay said in an email. "It has been the company's long-standing policy not to comment on such rumors."
On Nasdaq Friday, Imax is up $1.80, or 6.7%, to $28.66. Earlier in the session, the stock rose as high as $32.30
A person familiar with Disney's strategy said the company isn't interested in Imax. Sony couldn't immediately be reached for comment.
In a statement, Imax said "it is not aware of any corporate developments" to account for the stock's recent trading activity. It added that it doesn't intend to comment further. The company issued a statement at the request of a Canadian regulatory authority.
With the success of 3D film Avatar whetting demand for the Imax experience, the Toronto-based company has been expanding its footprint, signing contracts for 198 theater systems in the first nine months of 2010, up from just 23 in the same period a year ago.
"It's a rich deal if it's $40 or more," said Martin Pyykkonen, a senior equity analyst at Wedge Partners in Denver.
Based on 2011 consensus earnings estimates, the deal values Imax at more than 20 times earnings before interest, taxes, depreciation and amortization, or EBITDA, he said.
"Media stocks generally trade at eight times EBITDA and movie distributors trade at around four-to-five times EBITDA. Imax trades a bit of premium today, so that puts even more of a premium sticker on them," Pyykkonen said.
"From a strategic standpoint, it makes sense a lot of sense," he added.
The question is if such a deal can surpass regulatory hurdles in the U.S. and Canada. U.S. antitrust laws prevent studios from owning movie exhibitors, but Imax is a Canadian company, which might make a transaction easier, Pyykkonen said. As well, there may also be regulatory hurdles in Canada.
"It was a sleepy old company for a long time, and right now, there's a lot of screen growth. It's become a growth stock with increasing margins, and that always gets people excited," Pyykkonen said.
Imax doesn't actually own or operate the screens installed within its partner movie theaters, but rather licenses the technology, noted Eric Wold, an analyst at Merriman Capital.
"However, given that Imax does control the content that flows to its screens, we do see some risk that regulators would either not allow such an acquisition to go through or impose significant restrictions if they did allow it," he said.
He believes a studio-owned Imax would hamper growth, and was surprised to see the rumor center around Sony, which hasn't really used Imax very much for its movies. Of the 64 Hollywood movies that have played on Imax screens between 2003 and 2011, only five have been Sony movies, he said.
-By Caroline Van Hasselt; Dow Jones Newswires; 416-306-2023; caroline.vanhasselt@dowjones.com
(Ethan Smith contributed to this article.)
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