The IFC Rebellion: Shareholder Activism Or Hedge Fund Aggression?
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The rebelling shareholders of The Indian Film Co. Ltd, the AIM, London-listed speciality film investment firm part owned by Network18 Group promoter Raghav Bahl, may be able to gain some concessions at the extraordinary general meeting scheduled for Feb. 5, including their own representative on the board, reports The Economic Times, citing “observers”.
A group of shareholders, led by the Asia-focused hedge fund Altima India Master Fund, is seeking to remove Raghav Bahl and Alok Verma from the board and replace them with Aashish Vyas and Atul Sethia. The shareholders are unhappy with the financial performance of the company and the dwindling share price. They point out that there’s a “disconnect” between the box-office success of the films and the company’s financial performance. The dissident group, which includes Kelusa Master Fund and other shareholders apart from AIMF, together control 31.75% stake in the company, according to a statement issued by the group. Bahl holds 21.6%.
The dispute broke out two weeks ago and was reported by Business Standard. The rebelling group, which calls itself The IFC Requisition Group, has stressed two data points in its communications to media. First is the fact that IFC shares were trading at a 75% discount (on its listing price of 100 pence) on Dec. 22, when the EGM was called. Second is that in the first 18 months of operation, the company produced a net profit of £3.4 million (of which £2.0 million was earned in interest) on initial equity capital of £52.8 million. “On the basis of this, it is not possible for shareholders to draw any firm conclusions about the reasons for the low returns being achieved,” the group said in a statement.
Over the same period that dissident shareholders are referring to (June 18, 2007, to Dec. 22, 2008) the broader FTSE AIM 100 Index fell nearly 70% (vs the 75% drop in IFC’s share price). The shareholder group suggests that the financial results are at least partly a function of bad fiscal management—“rather than just current market conditions.” IFC has declined to comment about the dispute.
IFC is primarily in the business of distributing films. Typically it acquires the distribution rights of a film from its producers, paying a high acquisition price upfront, and monetizes the investment over the years through the resale of music rights, territorial theatrical rights, satellite rights, home video rights, DTH (direct to home) and pay-per-view rights over the years. The distributor has to bear all marketing and distribution expenses as well. The distributor makes only a small percentage—typically 25% to 30% of total box office collections (distributors make less and less money with every passing week that film runs in a cinema, due to the way deals with multiplexes are structured). According to Komal Nahata, author and analyst of the film trade, only about 50% to 60% of a distributor’s revenues come from box-office collections. The rest comes from the monetization of other rights.
IFC has had a string of hit movies including Jab We Met, Welcome, Singh is Kinng, Golmaal Returns and Ghajini. Dil Kabbadi and Kidnap were its other releases. Since the firm doesn’t disclose how much it paid to acquire these films and how much it spent marketing them, it’s hard to say whether IFC’s cost structure is too high. However, the films it owns (IFC typically buys rights for 10 to 15 years) clearly have several years of monetization left in them.
We’ll be watching to see what transpires at the Feb. 5 EGM.
@sruthijith
Jan 27, 2009 4:54 AM ET
Posted In: Entertainment, Movies
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