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The Hong Kong-listed shares of Imax China wobbled in reaction to the defeat of a buyout proposal that would have seen the Canadian parent company Imax Corp. take outright control.
Imax Corp. already owns a 71.5% majority of Imax China. But some 18% of shareholders who were not affiliated with Imax’s takeover bid voted against the buyout, exceeding the 10% threshold required to defeat the proposal.
In July, Imax Corp. had offered to pay HK$10 per share to buy out the 28.5% minority shareholders, in a move that would have cost it $124 million.
Following the shareholder decision, Imax China shares fell to HK$7.70 on Wednesday, and slipped to HK$7.59 at the midday trading halt on Thursday.
Imax Corp. had argued that its take-private move offered Imax China investors a meaningful premium to current market prices. And, after being challenged by an institutional investor, the company further said: “We believe that major contributory factors to the historical share price weakness are a lack of trading liquidity, low institutional ownership and declining research coverage – all of which will remain unchanged should the transaction fail to receive shareholder approval.”
Despite Imax Corp. and Imax China boards of directors approving the deal, the Canadian investment firm Letko Brousseau & Associates, argued that Imax Corp.’s offer “significantly undervalues Imax China,” that its timing was “opportunistic” and that its premium was compared with a “very depressed share price.”
“[Imax China] is beginning to emerge from the global COVID-19 pandemic that has kept a significant portion of its theatres closed over extended periods of time from 2020 to 2022,” said Letko.
Imax China was floated on the Hong Kong Stock Exchange in 2015 at HK$31 apiece. While the shares have lost 75% of their value in the intervening eight years, Imax China’s operations have tripled in size to become the largest geographical component of Imax Corp.
In June 2015, there were some 251 Imax theaters in operation across Greater China, the area covered by China, Hong Kong, Macau and Taiwan. At the end of December, that number had grown to 794 in operation. That compares with 441 in the U.S. and Canada.
Hong Kong’s takeover code prevents Imax Corp. making another bid for the China unit within the next 12 months. And the company says it has said that it has no plans to do so.
“While disappointing, the vote demonstrates that shareholders believe, as we do, that the future of Imax China is bright. We are committed to our business in China and our team will continue to create new growth opportunities for the Imax brand and technology in this vital market for blockbuster entertainment. Furthermore, we will explore opportunities to deploy the incremental capital intended for this transaction through alternate means of creating shareholder value, such as share repurchases of Imax Corporation stock,” said Rich Gelfond, CEO of Imax.
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