SFX Entertainment Inc. (SFXE, Financial) has given a green light to CEO Robert F.X. Sillerman's efforts to make the company private. The CEO has set aside around $306.7 million to make the 2012-founded company private. This deal is guided by Steptoe & Johnson LLP and Fried Frank Harris Shriver & Jacobson LLP, the company revealed in a statement. On trading day Tuesday, the company's shares were at a high of $5.11 and low of $4.85. Shares increased by $0.88 or 21.4% to $5 in midday same day.
Deal details
According to the deal, SFX will be taken over by an affiliate of Sillerman. Sillerman had previously proposed an original bid of $4.75 a share earlier this year. The special committee agreed on the deal almost instantly. Now that the company is almost a step close on going private, an offering of $5.25 will be made per share. This is a whooping 2.5% rise over Friday's closing price of $4.12. Therefore, SFX is valued at $774 million and the deal includes the company's cash and cash equivalents, debt, stock and other items. The deal, however, has to receive approval of most of the unaffiliated shareholders. A 45 day period also has to be maintained so as help the Special Committee to solicit and check out for better alternate proposals. Mr. Sillerman has agreed to vote in favor if a higher bid of a value more than 2.5% of his bid comes up. SFX said that they "actively solicit, receive, evaluate and potentially enter into negotiations with parties that offer alternative proposals." Around $15.5 million will be paid to Sillerman if an offer is accepted after the 'go-shop' period.
Investor take
On the completion of the merger agreement, Mr. Sillerman will acquire the whole of the company's outstanding common stock which he does not own. Currently, he has a 37.4% ownership in the form of outstanding common shares. The deal will given him a chance to lay his hands on the 62.6% he doesn't own. Shareholders will have a chance to elect to retain stock in SFX, in lieu of cash, subject to conditions. The deal is expected to close before the year ends. Richard Tullo, an analyst at Albert Fried, said that the bid was like an insult to shareholders. However, he was in favor of the 45- day period where alternative proposals can be accepted. It would give a chance to any bidder who has a much better offer to takeover SFX. However, it seems unlikely that any other bidder would go over Sillerman's offer of $5.25 per share. He however said that there was a 20% chance that a higher bid could come up. The company has not been performing well in the past months. So much so, that SFX has even reduced their earnings estimates for the full year 2015 as they suffered almost $5 million loss due to 'The Rock in Rio USA festival' which has held in Las Vegas. The company which boasts of owning Tomorrowland and Electric Zoo posted a $52 million revenue and $42 million net losses for the first quarter. For the full year 2014, SFX suffered a loss of $131 million on $354 million in sales.
It seems that making the announcement official is not a good option for the company given its current financial performance. It could indicate investor-friendly volatility. The company went public in October 2013 at $13 per share. Stock was valued almost $7 a share a year ago, indicating that SFX shares has been valued less than half its price. Ever since the company went public, the company went on to acquire many festivals. SFX also acquired React Presents in 2014. In the same year, SFX acquired Plus Talent, Listn – a Montreal based company, and many more. Earlier this year, the company revealed their decisions to restructure at an executive level. SFX named Kevin Arrix as their executive VP and chief revenue officer. Greg Consiglio was appointed as Chief Operating Officer and President. It seems that the company is going the extra mile to become profitable once again. If the company goes private, tables might turn and investors may be a happy lot.
