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Village Roadshow share price soars 19% higher on revised takeover bid

The Village Roadshow Ltd (ASX: VRL) share price has soared as much as 18.98% higher this morning after the entertainment company released details of a revised takeover proposal from private equity firm BGH Capital.

Shortly before this announcement, the company also provided further insight into the impact on COVID-19 on its operations, along with an update on its liquidity and funding position.

Takeover proposal

This morning, Village Roadshow announced it has received a revised, non-binding proposal from BGH Capital to acquire all of its shares by way of a scheme of arrangement.

Village Roadshow stated that following careful consideration of the revised proposal, it has entered into a transaction process deed with BGH. Under this deed, BGH will have the opportunity to undertake confirmatory due diligence and negotiate transaction documentation over a 4-week period on an exclusive basis.

BGH Capital’s revised bid is for up to $2.40 per share, representing a 35.98% premium to Friday’s closing price of $1.765. However, this is significantly lower than the $4 per share offer from BGH Capital announced earlier in the year.

The revised $2.40 offer price consists of a base offer of $2.20 per share plus an additional $0.20 per share subject to Movie World, Sea World, and Village’s cinema locations being re-opened by the time shareholders meet to vote on the proposal.

COVID-19 impact

Along with the takeover news, Village Roadshow also provided a trading update to the market this morning.

On 23 March, Village Roadshow made the move to close its Gold Coast theme parks, which include Movie World, Sea World, and Wet’n’Wild. These parks, along with Village Roadshow’s entire cinema circuit, remain closed.

The company’s other businesses, Roadshow Distribution and Marketing Solutions, continue to operate at a reduced capacity. However, these businesses are much smaller in size and would not usually contribute a material portion to earnings.

Village Roadshow stated it is in regular contact with local, state and federal government authorities in regard to the easing of restrictions and social distancing measures.

Liquidity position and funding

As stated in today’s announcement, Village Roadshow is undertaking a number of initiatives to preserve capital and reduce costs. This includes working with landlords and other suppliers to reduce operating expenditure and deferring non-essential capital expenditure where possible.

The company has stood down all employees not performing essential tasks and senior executives have agreed to pay cuts until 30 June 2020. Village Roadshow is participating in the government’s JobKeeper scheme to support the continued employment for eligible staff, including those who have been stood down.

While its key businesses remain closed, the company expects its underlying operating cash costs (inclusive of the JobKeeper subsidy) to be between $10 million to $15 million per month. Operating costs will then accelerate during the ramp-up phase when the company prepares to re-open its locations.

The company stated it is in advanced discussions with lenders to increase its debt financing facilities. As at 30 April 2020, it was in a net debt position of around $284 million, which consisted of $342 million of gross debt and $58 million of readily available cash. Village Roadshow expects its net debt position to increase to $315 million at 30 June 2020.

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Motley Fool contributor Cathryn Goh has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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