7 Jul 2008 07:00
Entertainment One Limited ("E1" or the "Company")
Acquisition of television production, television distribution and film distribution businesses in Canada
Notice of EGM
7 July 2008
Highlights:
Acquisitions of Barna-Alper, Blueprint and Oasis International drive E1's expansion into television production and distribution
Acquisition of Maximum expands E1's distribution in the Canadian market and further strengthens international filmed content and distribution
Board actively considering plans to move the Company to a dual-listing on Toronto Stock Exchange and moving up to Main List in London during current financial year
Extraordinary General Meeting to be held on 22 July 2008
E1 today announces that it has conditionally agreed to acquire four businesses in the Canadian television and film market. Together, these companies will establish the Company in the Canadian television production and distribution market, as well as further consolidating its existing film distribution operations within Canada. The acquisitions mark a significant milestone in the Company's strategy to build a significant international content ownership and distribution business. There is a strong common investor base and history of collaboration across the acquired companies.
Darren Throop, CEO of Entertainment One, said:
"These acquisitions allow us to expand into Canadian television programming and diversify our revenue base into a unique industry which enjoys a favourable financing environment and is highly exportable. We are now able to create content with a favourable risk-return profile and deliver it to our global film distribution companies. We expect to capitalize on the benefits that this direct access allows.
In conjunction with these acquisitions, the Board is also actively considering opportunities to enhance shareholder value via a move to a dual-listing on the Toronto Stock Exchange and the Main List in London in the current financial year."
The acquisitions incorporate Barna-Alper Productions Inc ("Barna-Alper"), Blueprint Entertainment Corporation ("Blueprint") and Oasis Pictures Inc. ("Oasis") alongside Maximum Film Distribution Inc. and Maximum Film International Inc (together "Maximum") ("the Acquisitions"). The Acquisitions will be completed by a newly incorporated subsidiary of the Company ("BidCo"). The total initial consideration for the Acquisitions is C$51.5m. This will be paid as to C$21.9m in cash and C$29.7m in the allotment and issue of exchangeable shares in BidCo and a new class of special voting shares in the share capital of the Company. The cash consideration will be financed through the Company's existing cash resources and debt facilities. A deferred payment in the form of cash and additional exchangeable shares in BidCo and special voting shares in the Company may become payable based on the financial performance of Barna-Alper, Blueprint and Oasis following the Acquisitions.
The current senior management of the acquired companies have entered into new service agreements with the Company and will remain in senior management positions within the Group. Following completion, Robert Lantos, founder of Maximum and a significant shareholder in each of Barna-Alper, Blueprint and Oasis, will join the board of E1 as a Non-Executive Director.
The acquisitions of Barna-Alper and Blueprint, both established independent TV production companies in Canada; and Oasis, a film and television international sales and distribution company, establish E1 as a significant TV producer and distributor in the Canadian market. The acquisitions also provide E1 with an international sales infrastructure which the directors believe will enable the company to license its television programming around the world. Maximum, which acquires rights in Canada for films from around the world, provides E1 with a strong platform for continued growth to become the Canadian market leader for content and distribution.
In their last financial years, the acquired companies generated aggregate revenues of C$54.3m and aggregate EBITDA of C$7.8m. The acquisitions will boost E1's overall content and distribution capabilities, adding over 2,800 hours of programming to the Company's existing content library.
Following completion, Barna-Alper and Blueprint will operate within E1 as an integrated television production unit. Oasis will continue to represent the titles produced by these companies alongside third party productions. Maximum will be fully integrated with Seville Pictures, E1's existing film distribution business in Canada. All of the acquired businesses will be part of E1's Filmed Entertainment division headed by its President and E1 Executive Director Patrice Theroux.
Share awards under the Company's employee incentive schemes representing approximately 750,000 ordinary shares will be made to each of Darren Throop and Patrice Theroux on or shortly after completion of the Acquisitions. The share awards will be subject to similar performance criteria as the existing awards made under the Company's employee incentive schemes.
The Company also today announces an Extraordinary General Meeting to be held on 22 July 2008 (the "EGM"). Completion of the Acquisitions is conditional, amongst other things, on the passing of resolutions (the "Resolutions") to be proposed at the EGM. The Company has received irrevocable undertakings to vote in favour of the Resolutions from shareholders representing approximately 82.4 per cent. of the issued share capital of the Company. Details of the Resolutions to be proposed at the EGM, plus additional details relating to the target companies, the exchangeable shares and the special voting shares are included in a shareholder circular that has been posted to shareholders. This circular and the notice of EGM will shortly be available to view on the Company's website, www.entertainmentonegroup.com.
Enquiries:
| Quiller Consultants | Claire Kearney John Eisenhammer | 020 7233 9444 |
| Entertainment One | Giles Willits | 020 7004 2755 |
| Kaupthing Singer & Friedlander Capital Markets Limited (NOMAD) | James Maxwell / Marc Young | 020 3205 7500 |
Further information on the Target Companies
Barna-Alper Productions Inc.
Barna-Alper is an independent television content production company based in Toronto, Canada and is focused primarily on drama and factual programming. Barna-Alper was founded in 1980 by the current CEO, Laszlo Barna, who will remain with the Group following the Acquisitions.
Barna-Alper's library includes approximately 600 hours of television programming. Recent successes include: Da Vinci's Inquest (91 episodes completed) which remains in syndication in every major market in the US; Mega Builders (27 episodes completed) which is broadcast worldwide on Discovery Channel and its international affiliates; Frontiers of Construction (65 episodes completed) which is also broadcast in the US by the Discovery Channel and worldwide on its international affiliates; Turning Points of History (currently over 100 episodes completed). Barna-Alper's library also includes a number of award-winning documentaries.
In the year to 30 November 2007, Barna-Alper reported the following results in its audited accounts:
| C$'000 | |
| Turnover | 13,535 |
| Gross profit | 5,931 |
| Gross profit margin | 43.8% |
| EBITDA | 2,431 |
| EBITDA margin | 18.0% |
Blueprint Entertainment Corporation
Blueprint is an independent television content production company based in Toronto, Canada, and Los Angeles, USA. It is focused primarily on drama, comedy and, childrens' series. Blueprint was founded in 2002 by the current Chairman and CEO, John Morayniss, and the current President, Noreen Halpern, who will both remain with the Group following the Acquisitions. Prior to founding Blueprint, both John and Noreen held senior positions within the television division of Alliance Atlantis Communications Inc.
Blueprint's library includes Til Death Do Us Part (13 episodes completed and currently broadcast on TrueTV in the US and on Global Television Network in Canada); The Best Years (13 episodes completed and currently broadcast on The N in the US and Global Television Network in Canada); Whistler (26 episodes completed and currently broadcast on The N in the US and on CTV in Canada); and Kenny vs. Spenny (52 episodes completed and currently broadcast in Comedy Central in the US and Showcase Television in Canada).
In the year to 31 January 2008, Blueprint reported the following results in its audited accounts:
| C$'000 | |
| Turnover | 32,021 |
| Gross profit | 8,594 |
| Gross profit margin | 26.8% |
| EBITDA | 4,357 |
| EBITDA margin | 13.6% |
Oasis Pictures Inc.
Oasis is a film and television international sales and distribution company based in Toronto, Canada. Oasis was founded by the current CEO, Peter Emerson, who will remain with the Group following the Acquisitions.
The business has a history of working closely with Blueprint and currently distributes a significant proportion of Blueprint's original programming. Oasis has also historically distributed some programming for Barna-Alper. Successful third party library titles include television series including ReGenesis (now licensed in over 100 countries), reality shows including Keys to the VIP and Very Bad Men (both sold to US cable television) and children's series including Screech Owls (currently sold to Discovery US).
In the nine month period to 31 January 2008, Oasis reported the following results in its audited accounts:
| C$'000 | |
| Turnover | 8,725 |
| Gross profit | 2,644 |
| Gross profit margin | 30.3% |
| EBITDA | 1,019 |
| EBITDA margin | 11.7% |
Maximum Canada
Maximum Canada comprises two sister companies, MFD and MFI.
MFD is a film distribution company based in Toronto, Canada. Since it began trading in 2007, MFD has acquired Canadian distribution rights to a number of feature films by signing single-picture deals alongside output agreements with a number of independent producers.
MFI is an international film sales agent based in Toronto, Canada, focused on representing both Canadian and international producers. MFI was founded around the same time as MFD and the strategy of both companies is to coordinate to maximise their position to access feature film content in the Canadian and international distribution markets.
Both MFD and MFI were founded by Robert Lantos. Following the acquisition of both MFD and MFI, Robert will join the board of the Company as a Non-Executive Director. Prior to founding Maximum Canada, Robert was a founding partner of Alliance Communications Corporation.
Neither MFD or MFI have yet completed a full financial accounting period since their incorporation in 2007. In the period from incorporation to the end of February 2008, MFD generated an unaudited net loss of approximately C$1.1m and had capitalized investment in film assets of approximately C$4.0m. In the same period, MFI generated an unaudited net loss of approximately C$1.0m and had capitalized investment in film assets of approximately C$0.6m.
Simultaneously with the acquisition of both MFD and MFI, E1 Films Canada Inc. (a subsidiary of the Company) will enter into an output agreement on an arms length basis with Serendipity covering distribution of all Serendipity titles (including all previously released and future titles) within the Canadian market.
Background information on the Canadian television market
The Directors believe that the Canadian market represents an attractive opportunity to produce English-speaking television content at minimal risk to the Company's capital. Barna-Alper and Blueprint's financial model is based on securing third-party financing for 100% of a production's direct costs before starting production. They are able to achieve this by securing Canadian and US broadcast commissions and by taking advantage of a variety of Canadian government and public-private incentives available while retaining a majority of the rights associated with the production. The Directors believe that Barna-Alper and Blueprint's access to this financing compares favourably with production companies that operate in other jurisdictions, which may be obliged to give up significant rights and/or to fund significant production deficits in order to complete production financing.
The Canadian financing environment usually allows Barna-Alper and Blueprint to retain a majority of ownership and exploitation rights in relation to their productions. In addition to international television distribution, these exploitation rights include home entertainment as well as ancillary markets such as music and literary publishing, merchandising and licensing, and new media.
Barna-Alper and Blueprint are able to benefit from Canadian federal and provincial labour-based tax credits, and a number of government and public-private incentives. These incentives include license fee contributions and equity investments from the Canada Television Fund Equity Investment Program (administered by Telefilm Canada) and License Fee Program, provincial government equity investments, provincial government development equity funds as well as public-private equity investments. Barna-Alper and Blueprint use equity investments in limited circumstances. Any equity investment flows directly to the production company incorporated for that purpose and as such is recouped solely against the future returns of that particular production company. Barna-Alper and Blueprint qualify all of their productions for all or some of these incentives, including tax credits for Canadian certified content from CAVCO.
Refundable tax credits
Within Canada, a refundable tax credit is available under the Income Tax Act (Canada) for eligible television and film production undertaken by qualified Canadian corporations. Barna-Alper and Blueprint currently qualify for this tax credit and the Directors believe that they will continue to do so following their acquisition by the Company. In addition, certain provinces within Canada have implemented programmes that provide similar tax credits based on similar provincial qualification criteria.
Telefilm Canada
Telefilm Canada is a federal cultural agency dedicated primarily to the development and promotion of Canada's film, television and new media industries. The Canadian government, through Telefilm Canada, has implemented and sustained funding programmes over the last 39 years.
Canadian Television Fund
The CTF is a partnership composed of certain public and private television industry participants created in 1996 with the purpose of increasing the quality and quantity of Canadian programming and enhance the broadcast system's capacity to produce and distribution Canadian programming. Funding for the CTF comes from mandatory contributions from broadcasters whose licenses are awarded by the CRTC. Generally, CTF funding will take the form of a license fee top-up followed by an equity investment for which CTF gains a limited participation in the profits of the project.
Canadian Audio-Visual Certification Office
CAVCO is the Canadian government agency responsible for certifying audio and video content to qualify as Canadian content. Barna-Alper and Blueprint's productions benefit from CAVCO certification because Canadian television licensees must fulfill regulatory requirements and/or conditions of licence that required them to broadcast a certain percentage of "Canadian content". CAVCO certification is also required to qualify for certain of the funding sources discussed above.
Notes to Editors:
Entertainment One Ltd. (LSE: ETO) AIM listed, Entertainment One is a leading international entertainment company with operations in Canada, the U.S, Holland, Belgium and the UK, where it distributes, acquires and owns filmed entertainment and music content in all media. The Company's strategy is to build a leading international independent entertainment content ownership and distribution business which acquires films, television programmes and music content and exploits these rights in all media throughout the world. Entertainment One also owns Koch Entertainment, the largest independent record label in North America and a leading independent distributor of music and video in the United States. www.entertainmentonegroup.com
Blueprint Entertainment
http://www.blueprint-corp.com/
Oasis International
http://www.oasisinternational.com/
Barna-Alper Productions
http://www.bap.ca/index.html
Maximum Films
http://www.maximumfilms.ca/