TORONTO — Film and TV production company Kew Media Group today announced its board of directors has initiated a strategic review process with the formation of a special committee of independent directors who will examine strategic alternatives for the company. At the same time, Kew Media announced its chief financial officer, Geoff Webb, has left the company after it was discovered some of his reports contained inaccurate information regarding working capital.
Kew Media said in a news release the strategic review follows expressions of interest from a number of parties concerning potential transactions involving the company. The strategic alternatives for the company could include the sale of part or all of the company, a merger or other business combination with another party, or new capital initiatives, Kew Media said in the release.
The special committee is chaired by David Fleck and includes Patrice Merrin and Maish Kagan, and its financial advisor is TD Securities Inc.
“Kew is a leading content platform comprising highly coveted assets in its global portfolio of production and sales companies. The Board’s goal is to maximize value in the best interests of Kew and all its stakeholders,” said David Fleck, chair of the special committee, in the news release.
Regarding the former CFO’s reports that contained inaccurate information, Kew Media said it is conducting a detailed review of these matters with the support of its financial and legal advisors and is currently in discussions with its senior leaders regarding this and its short-term liquidity requirements.
Kew Media has appointed Michael Corrigan as interim CFO. Corrigan was recently introduced to the company and is an experienced media and entertainment executive with more than 25 years’ experience in general management, operations, strategic planning, finance and administration in addition to serving on the boards of directors of both public and private companies, Kew Media said. Corrigan was previously senior executive vice-president and CFO of Metro Goldwyn Mayer Inc. Prior to MGM, Corrigan was a senior partner in the Entertainment, Media and Communications practice at Price Waterhouse LLP. More recently he was at Sonar Entertainment/RHI.
Peter Sussman, executive chair of Kew Media, is quoted as saying: “Management is fully supportive of these initiatives. We remain keenly focused on running Kew’s operations.”
Steven Silver, CEO of Kew Media, added: “We welcome Michael Corrigan to the company and look forward to working with him.”
Kew Media said in its news release there can be no assurance as to the form or timing of any transaction(s) as a result of the exploration of strategic alternatives and Kew does not intend to update the market on its progress unless or until it determines that further disclosure is appropriate or necessary.
In a note sent to media after Kew Media’s announcement this morning, Canaccord Genuity associate analyst Matthew Lee and analyst Aravinda Galappatthige wrote: “In our view, this represents another setback for Kew, which has seen its shares fall substantially post its Q3 earnings miss.”
The Canaccord Genuity analysts went on to say that finding a buyer for the whole company may be a challenge.
“We believe that potential buyers of Kew’s entire business could include Corus Entertainment, but expect that CJR [Corus — TSX: CJR.B] is unlikely to pay over 5x for the business. Considering that Kew currently trades at ~4.5x, we are unsure whether the premium would be enough to entice a transaction. Private equity may also be a potential buyer, but we believe this would largely depend on the company’s ability to generate consistent FCF [free cash flow]. Given the precedent experience with DHX Media, which also put itself up for sale with no ultimate buyer, we expect the market to be somewhat sceptical at the outset,” they wrote.
“A partial asset sale could be a more effective route,” they added. “From our prior discussions with management, we believe that many of the global assets (especially distribution assets) have garnered interest from international media companies. We believe that selling certain assets could allow for the company to reduce its debt load (4x net debt/EBITDA) while maintaining its core distribution and production assets.”
