SENSEX NIFTY
Jun 25, 2014, 06.14 PM IST | Source: CNBC-TV18

Prime Focus will continue to hold 80% in new co: Founder

In a conversation to CNBC-TV18, Namit Malhotra, founder, Prime Focus says the merger of Prime Focus World with Double Negative will create a consolidated group of visual effects services, 2D to 3D conversions and animation services.

This merger is being contemplated on the basis of new equity and debt being financed across all our current investors and we are literally at the last stage of closing

Namit Malhotra

Founder

Prime Focus

Prime Focus  stock was buzzing in trade today after the board approved merger of its creative services subsidiary Prime Focus World with Double Negative which is one of the world’s foremost visual effects companies. Prime Focus World contributes nearly 65 percent of revenues to Prime Focus.

In a conversation to CNBC-TV18, Namit Malhotra, founder, Prime Focus says the merger of Prime Focus World with Double Negative will create a consolidated group of visual effects services, 2D to 3D conversions and animation services.

Prime Focus will continue to hold 80 percent in the new entity post merger. The company currently holds nearly 94 percent in Prime Focus World.

Below is the transcript of Namit Malhotra’s interview with Menaka Doshi, Senthil Chegalvarayan and Varinder Bansal of CNBC-TV18.

Menaka: If you could just take us through the details of the deal first. What exactly are you selling, how and for how much?

A: This is not a sale. This is clearly a merger of our international visual effects business which is traded under the name of Prime Focus World which is a subsidiary of the listed company in India. We are looking at merging our visual effects business with Double Negative which is one the worlds foremost visual effects companies to create what will be a consolidated group of visual effects services, 2D to 3D conversions and animation services. That would form part of this new enlarged entity.

Senthil: What percentage of revenues comes from Prime Focus World?

A: Almost 65 percent.

Menaka: What are you getting in exchange for merging this business, cash, shares or what?

A: This is going to be a stock swap. There will be a consideration paid to the current holders of Double Negative and their stock will then be merged into Prime Focus World.

Q: What exactly is the merger ratio, who will be managing that combined company? Right now it is not clear on whether they are buying out your business and merging it and your using your arm to sort of takeover their business?

A: The visual effects business that we own in the international sector is being merged. That currently trades as part of our global operations, so there is no sale from Prime Focus’s standpoint. It will continue to be almost 80-85 percent subsidiary of the parent company which is listed here. There will be cash and stock consideration paid to the current holders of Double Negative.

The new trading name will be traded under Double Negative as part of our international operations and that is basically the construct of this deal. It is not like we are selling out or exiting that business in any shape or form.

Q: Will the revenue of the merged company now flow back into Prime Focus, the Indian listed company?

A: Yes.

Varinder: How much are you valuing the company at Prime Focus World, in this transaction?

A: Prime Focus World has bench mark valuation from last year when we have done financing with Macquarie Capital at USD 253 million and that continues to be consistent with the current deal.

Varinder: What could be the share holding pattern of Prime Focus World post the merger with Double Negative?

A: We would continue to hold about 80 percent of company.

Varinder: Down from 94 percent?

A: Yes.

Senthil: Is there any cash outflow from Prime Focus World?

A: Yes, there will be a cash and stock consideration that has been made as part of the overall financing and the details of which we are under firm negotiations and so, we will be able to disclose that shortly.

Menaka: What are the combined valuations? What will be the burden on Prime Focus World in the process of merging this arm with Double Negative?

A: This merger is being contemplated on the basis of new equity and debt being financed across all our current investors and we are literally at the last stage of closing.

Menaka: New equity and debt being financed all our investors, can you just simplify that?

A: Our current investors such as Standard Chartered Private Equity and other stakeholders would be putting in additional equity into this overall transaction and we would be raising some amount of debt as part of this overall financing.

Menaka: What would putting in additional equity into this overall transaction exactly mean?

A: Into Prime Focus World, into the subsidiary.

Menaka: So they are likely to put in more money, invest more money. Is that what you are looking at?

A: Yes, there will be some amount of cash, stock and earn out structure over the course of next few years.

Prime Focus stock price

On October 30, 2014, Prime Focus closed at Rs 48.70, down Rs 0.2, or 0.41 percent. The 52-week high of the share was Rs 58.35 and the 52-week low was Rs 23.75.


The company's trailing 12-month (TTM) EPS was at Rs 2.56 per share as per the quarter ended June 2014. The stock's price-to-earnings (P/E) ratio was 19.02. The latest book value of the company is Rs 25.55 per share. At current value, the price-to-book value of the company is 1.91.

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