Britain's Marwyn Investment Management LLP has struck a $120-million deal to acquire Entertainment One Income Fund in a bid to turn its business into a powerhouse international home video and movie distributor.
The Brampton, Ont.-based income trust owns Canada's largest wholesale distributor of DVDs, CDs and video games; music retailer CD Plus; and Koch Records, the largest independent record label in the United States.
"We see it [the deal]as an opportunity to look for best-of-breed companies in each country, and bring them all under the Entertainment One umbrella," James Corsellis, managing partner with the London-based hedge fund manager, said in an interview.
Marwyn is also looking for other companies or trusts in the entertainment area in Canada and elsewhere, with a strategy focused on acquiring rights to DVDs and film libraries, and expanding further into digital distribution, Mr. Corsellis added.
"We regard Entertainment One as a fantastic base for the [distribution]business to expand and to acquire content to put through that distribution channel."
Under the terms of the all-cash offer unveiled yesterday, Entertainment One unitholders will receive $3.60 a unit. That represents a 33-per-cent premium over the closing price of the units on Tues. Feb. 13.
Units of the Entertainment One Income Fund, which have been pummelled since the trust suspended distributions last June, soared 27 per cent or 73 cents to close at $3.43 on the Toronto Stock Exchange yesterday.
"We like Canada," Mr. Corsellis said. "We see fantastic businesses that have international ambition, but are sometimes constrained either by the availability of capital or by structure, particularly in the income trust area."
The problem with Entertainment One was that it had to distribute most of its cash instead of reinvesting in the company as it faced competition from online DVD rentals and movie downloads, he said.
The transaction, which is expected to close late next month, is subject to approval at a special meeting by 67 per cent of the votes cast by a simple majority of unitholders, excluding senior management.
Genuity Capital Markets, financial adviser to Entertainment One, has recommended that unitholders vote in favour of the deal.
Forty-eight per cent of the unitholders have agreed to vote in favour of the transaction. They include Clarke Inc., Standard Broadcasting Corp., Trapeze Capital Corp., Trapeze Asset Management Inc., and a corporation owned by the founders of Entertainment One, including chief executive officer Darren Throop.
The offer for Entertainment One is being made through Earl Street Capital Ltd., a company set up specifically to make the bid.
But that name will be changed to Entertainment One Ltd. when the company begins trading on the Alternative Investment Market of the London Stock Exchange upon the closing of the deal, Mr. Corsellis said.
Current management of Entertainment One will continue to run the newly listed company. "We don't see any need for cost cutting," Mr. Corsellis said.
Entertainment One has 1,000 employees in Canada, including 600 at its 93 CD Plus retail outlets, and 200 employees in the United States.
Mr. Throop could not be reached for comment.
Marwyn, whose offer also assumes Entertainment One's debt of $68-million, has raised the money for the acquisition from one of its funds and three other institutional investors, Mr. Corsellis added.
Entertainment One was put in play last fall by Marwyn when it made an unsolicited offer. That prompted a special committee of the trust in October to look at "strategic alternatives."
Mr. Corsellis said Marwyn's offer came shortly after it took the wraps off a $400-million all-cash bid last summer for Toronto-based Motion Picture Distribution LP in a bid to kick-start a friendly takeover of Canada's largest movie distributor.