IMAX Offers To Buy Share Shares It Doesn’t Own In IMAX China For $124 Million

IMAX Corp., the global entertainment technology company, proposed today to purchase the 29% ownership stake it doesn’t already hold in IMAX China, a Hong Kong-listed subsidiary that oversees its business in Greater China, for approximately $124 million, or HK$10 per share in cash for 96.3 million shares, the company said in an announcement.

The offer represents an approximate 49% premium to the 30-trading day average closing price, said IMAX, best known for film technology used some 1,700 theatres in nearly 90 countries.

The acquisition would give parent company IMAX Corp., whose shares trade on the New York Stock Exchange, more flexibility to pursue new opportunities and applications of IMAX technology in China; it will also be accretive to IMAX earnings and save costs, IMAX said.

“We think it’s a good thing for all involved,” IMAX CEO Rich Gelfond said after the announcement.

IMAX China listed in Hong Kong in 2015; its shares traded in the ballpark of HK$60 a share that year.

Though China’s box office has rebounded this year from the worst of the pandemic – IMAX China’s own revenue in the first quarter increased by 24% year-on-year to $26.6 million, capital markets in China haven’t appreciated the IMAX China story, and fewer analysts currently cover IMAX China’s stock than in the past, Gelfond said.

Investors in IMAX China “had a very undervalued, underfollowed, underliquidity stock there,” he said in a call with analysts today.

“Things are certainly better than they were during the pandemic,” he said. “I think we’re on a decent trajectory” and remain “as optimistic as ever” about future growth potential in China, Gelfond said.

“Hollywood films are securing release dates in China with increasing consistency,” he noted. For example, some 26 U.S. films have been approved for release in China so far this year versus 25 for all 2022, Gelfond said. “We consistently deliver double-digit opening weekend box office market share on Hollywood releases, even though we are on 1% of screen penetration in China.”

In another sign of optimism about China’s film market, China Ruyi Holdings, a Chinese online film and gaming company whose investors include Internet giant Tencent, said earlier this month it had raised about $511 million, through the sale of new shares. (See post here.) Tencent, which currently owns a 20.45% stake, will buy 500 million shares at a price of HK$1.60 each, and still hold about one fifth of the company after the issue is completed. “After the end of the Covid-19 outbreak, the film industry has started to recover,” Ruyi said. Funds will provide a “definite amount of capital to further develop and expand its film and gaming businesses.”

The U.S. accounted for only about 30% of IMAX’s total revenue of $86.9 million in the first three months of the year. Led by Asia, revenue outside of the U.S. rose by nearly half year-on-year to almost $61 million. (Click here for a Forbes interview with Gelfond earlier this year on the company’s global outlook.)

Imax’s history dates to 1967 when it was known as Multiscreen Corp.; the name changed to its current one in 1970. Gelfond has been co-CEO or CEO IMAX since 1996. Between 1979 and 1994, he worked at a law firm and an investment bank before joining IMAX in 1994.

IMAX started out in China in the 1990s by producing science-related documentaries used as education and learning tools; success came in part by working closely with government partners. IMAX’s first customer in the country was a Shanghai government organization; its first picture was “China: The Panda Adventure.”

Long holidays are crucial to China’s box office, and IMAX has had success this year with two of the most important so far in 2023. Revenue during the Chinese New Year holiday in January was boosted by the 2nd and 3rd highest-grossing IMAX films of all time in China: ‘Avatar: The Way of Water’ and ‘The Wandering Earth 2.’ The latter was its biggest local language release ever. Business this year has also gotten a boost from Alibaba’s “Born to Fly.”

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@rflannerychina