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Entertainment One Ltd (LSE:ETO) issued an Interim Management Statement & Strategic Update this morning that seems to have met with mixed reviews amongst its’ shareholders. Although most of the announcement was positive in nature, it appears that a lackluster performance by the distribution arm of the business, along with the decision of the board to withdraw their pursuit of the sale of the company may have prompted a 16.52% decline in share price on modest trading of just under 2 million shares by 1:30 GMT.
The company’s decision not to sell is the product of five months of intensive review by the board in conjunction with advisors Credit Suisse and J P Morgan. Offers tendered for the purchase of the company did not, in the board’s opinion, adequately reflect the value of the company. The consensus of the board and its’ advisors was to plot an entirely different course for the company and focus on growth through acquisition. Credit Suisse and J P Morgan are now actively pursuing potential synergetic and value-adding acquisitions.
Divisional Performance
Film
Revenues from the film division were up 15% for the 9 month period ending December 31, 2011, on a constant currency basis and a pro-forma basis compared to the same period during the prior year.
The development of a base of more widely received and popular films for release is reflected in the result that films distributed by the company have received seventeen nominations for Academy Awards.
Digital sales have doubled compared to the same period during the previous fiscal year.
Television
Revenues from the sales of television series, including Hell on Wheels, The Walking Dead, Haven, the Firm, Saving Hope, Rookie Blue, and Peppa Pig, have grown 39% compared to 2011.
Distribution
Closure of the company’s retail chain last year contributed to a decline in distribution revenues. Although the closures were a one-time event, the continuing consumer transition from physical to digital channels is having an ongoing impact. Adjusting for the one-time event, distribution revenues were down 14% from the same period, previous year.
Financial
Net debt was lower than the same period, previous year, and net earnings to EBITDA ratio continues to be favourable.
Company Plans
The company’s strategy is now to achieve growth through acquisitions. Although no particular information was forthcoming, the company did say that it would announce any confirmed intentions within due course. Some believe that the company may be in the market for a Canadian IP company, or further investment in Europe or Latin America. The Guardian observed that “The retention of major banks Credit Suisse and JP Morgan – as opposed to doing a small deal in-house or using a boutique adviser – is an indicator that any deal is likely to be worth at a minimum between £50m and £100m, but could easily be worth more than £200m.”
Company Spotlight
Entertainment One specialises in acquiring distribution rights for films in Canada, the UK, Benelux and the United States. It also produces, licenses, and distributes its own and third-party television programs to over 500 broadcasters in 150 countries. Its’ distribution arm has provided analog and digital content to over 4,000 retail customers.
