Spheria says VRL value is "north of $3 before a takeover premium"

Awesome news from a Brisbane newspaper - I've bolded and underlined the best bits.

Even with major shareholders offering to underwrite a sensible re-capitalisation, the "independent" directors still keep pushing the BS that this is all in our best interest.

Means that Scheme A is officially dead and Scheme B now needs 82% of the remaining 68m votes to get up, assumes Sethu (10m) to vote with VRC.

Copy of article below.

Prominent private equity firm BGH Capital's bid to takeover embattledtheme parks and cinema operator Village Roadshow has hit another snag after akey independent shareholder criticised its bid by describing parts of it asunacceptable.

Spheria Asset Management holds a 7.8 per cent stake in Village, makingit the second largest independent shareholder and a crucial voter at a schememeeting later this month when the proposed $758 million takeover byMelbourne-based BGH, led by Ben Gray and Robin Bishop, is taken to a vote.Village's other major independent shareholder, Mittleman Brothers, has publiclydisclosed plans to block the sale.

Spheria portfolio manager Matthew Booker told The Sydney Morning Herald and The Age he did not like the bid on the table and said his firm had offered to recapitalise the owner of Sea World, Warner Bros Movie World and Wet N Wild if takeover talks fell through.

"We are unhappy with the price being offered by BGH," MrBooker said. "We value Village north of $3 on a through the cycle basisand that’s without any takeover premium. We believe the majority of issuesfacing the company are temporary in nature and the bid is highlyopportunistic."

Village was hit hard by the coronavirus pandemic. Social distancing restrictions caused its cinemas and theme parks to suspend trading and the company has continued to lose money despite the re-opening of some venues. The challenges of the pandemic only added to the problems Village has faced in recent years. The Kirby brothers were caught up in a bitter and public family feud in 2019 over the leadership and direction of the company. Since 2014, Village Roadshow’s market value has tanked from $1.2 billion to $447 million.

The company secured a $70 million funding lifeline from banks and theQueensland Government in August, but was put under more pressure in Septemberafter ending its long-running agreement as local distributor of Warner Brostitles in Australia. It still has a large debt pile and will be required toraise a large amount of capital if the deal falls over.

Under the proposal announced in August, Village and BGH would enter intoan agreement where shareholders could receive up to $2.45 per share.

Structure A would give shareholders a base price of $2.20 per share,with an additional 25¢ per share dependent on the reopening of theme parks,cinemas and Queensland borders. Brothers John Kirby and Robert Kirby and formerchief executive Graham Burke control about 42 per cent of the company, but areunable to vote under this structure which means that Mittleman and Spheria,should they choose, have the ability to block the bid.

If rejected, structure B would be a lower $2.10 per share offer with the25¢ additional payments. Both valuations were rejected by Mittleman, whichincreased its stake to 11.2 per cent on Friday. Mittleman has threatened to suethe directors and an independent committee for failing to discharge theirduties to shareholders and intends to block two scheme arrangements when theyare put to a vote on November 26.

Mr Booker would not explicitly disclose his voting intentions butexpects scheme A to fail because of Mittleman's increased stake. He said the$2.10 offer under structure B was "paltry".

"A takeover price of $2.25 is simply unacceptable and we havenotified the company that we are willing to recapitalise the business in eventof both schemes failing," he said. "We believe the company needs lessthan $100 million of equity capital and are willing to underwrite a largecomponent of this."

"We are not afraid of the deal breaking and the share pricepotentially falling - we owned it down to 77¢ at the bottom of COVID. If that’swhat it takes, so be it."

Mittleman chief investment officer Chris Mittleman said the firmcontinue to believe the valuations are "atrociously low".

"It is brazenly opportunistic and the IBC members should be ashamedof themselves for committing us to it," Mr Mittleman said.

Chair of the independent committee of the Village board of directorsPeter Tonagh said the company still unanimously believes the transaction is thebest option available.

"The cinema sector is undergoing significant structural change, notjust temporary COVID impact while theme parks will continue to be impacted bydomestic and international border restrictions," Mr Tonagh said. "Thevalue of VRL has decreased materially since the beginning of the year due toits significantly higher net debt position, which continues to increase as aresult of ongoing negative cashflows, and its significantly lower earnings.With all these factors in mind, the BGH proposal is attractive and will realisesignificant value for all VRL shareholders relative to all alternatives,including the status quo."

Village shares closed at $2.29 on Friday.