30 Jun 2006

ContentFilm Aquisition of Home Video Assets and Allumination Film Works

Source: ContentFilm PLC RNS

The Board of ContentFilm plc (AIM: CFL) today announces that it has reached agreement to acquire certain assets (UAV Assets) from UAV Corporation and UAV Holdings Inc. (UAV), a U.S. DVD company, through a new joint venture company to be established in the U.S. with Jeff Sagansky and Kerry McCluggage. The UAV Assets consist of receivables, inventory, fixed assets and licenses for the U.S. home video rights relating to approximately 350 feature films.


Sagansky was formerly President of Tri-Star Pictures, President of CBS Entertainment and President/CEO of Paxson Communications. McCluggage was formerly Chairman of Paramount Television Group with responsibility for worldwide television operations and programming.


The consideration for the UAV Assets will be $7 million in cash, of which the Company is providing $4 million and Sagansky and McCluggage together are providing $3 million through their respective interests in the new joint venture company. Upon completion, to occur no later than 7 July 2006, the Company will own 57% and Sagansky and McCluggage will own 43% of the new joint venture company.


Furthermore, the Company has reached an agreement to acquire, subject to the approval of the Company’s lenders, both the minority interest of Sagansky and McCluggage in the new joint venture company and either the business of Allumination FilmWorks or all of the equity interest of Allumination FilmWorks, which is owned by Sagansky and McCluggage. Following these transactions, the Company will wholly own an integrated DVD distribution business in the U.S.


The interests of Sagansky and McCluggage in the new joint venture company will be purchased by ContentFilm for $3 million to be satisfied in cash, plus accrued interest at 8% between the date of payment for the UAV Assets and completion. The consideration for the acquisition of Allumination FilmWorks by ContentFilm will be $4.472 million which will be satisfied by the issue of ordinary shares in ContentFilm priced at the average closing middle market price for the fifteen trading days prior to completion but priced no lower than 8p and no higher than 10p per share.


It is intended that the name Allumination FilmWorks will be retained. Mr. McCluggage will be the Chief Executive Officer of the new joint venture.

Effect of the Transactions


Once completed, the effect of the transactions will be that the Company will own a significant US DVD distribution business. That business will have the benefits of the traditional sell-through strengths of UAV and the traditional rental strengths of Allumination. It will be run by an experienced industry executive team and it will benefit from the wealth of experience within the UAV and Allumination staff.


We expect that the financial effects of the transactions will include:


• an increase in revenues. On a pro-forma basis the combined revenue of ContentFilm and the new acquisitions for their last financial years would have been in excess of $50 million
• an increase in cash flows
• an increase in EBITDA and an increase in operating earnings
• an increase in loans outstanding from the current level of $15 million to approximately $23 million after completion of the transaction. This debt will be reduced in the coming year by cash flow from the Company’s existing business and from the new DVD/video operation.


Information on UAV and Allumination


UAV acquires domestic home entertainment, video, and audio rights from studios, independent producers and record labels, and manufactures, packages and sells DVDs, VHS cassettes and audio CDs of its licensed content to retailers in the U.S. UAV focuses on children’s and family content and prices its products at budget “impulse buy” price points. UAV has a strong relationship with Wal-Mart and sells the majority of its titles directly to them on a sell-through basis.


Allumination acquires domestic home entertainment rights from studios and independent producers and distributes DVDs and VHS cassettes of its licensed content to retailers throughout the U.S. Additionally, it acquires satellite and cable television rights as well as international theatrical and home entertainment rights and sells those rights on to other domestic and international distributors. In the U.S. market, Allumination has had an historical strength in DVD rental exploitation. Allumination has a portfolio of nearly 200 quality theatrical films in all major categories, over 4,000 hours of television programming and various music specials and children’s/family feature titles.


Historical Financial Results Attributable to the Assets


The UAV Assets form only a portion of the overall business of UAV, and as such, there are no historical financial statements. However, unaudited management accounts have provided estimates of historical sales of the UAV Assets in 2005 of approximately $30 million. Unaudited revenue for the three months ending March 2006 was approximately $10 million.


In relation to Allumination, the business was reconstituted in March 2005 and is effectively in a start up phase. In 2005 Allumination reported sales of $4 million and an exceptional loss of $3 million due to the restructuring of the Company. For this calendar year, Allumination’s revenues are forecast to be around $10 million and it is expecting positive EBITDA and operating profits.


Alton Irby, non-executive Chairman of the Company said:


“At the time of our acquisition of Fireworks, we stated that the Company would seek further acquisitions in the areas of rights management and video/DVD distribution in order to build the Company’s assets and provide a more stable and predictable earnings platform. Clearly the above transactions achieve these goals. We will have a significant U.S. video/DVD distribution business with positive revenue and cash flow characteristics. The deal will be accretive due to the strong revenue and earnings of the acquired operations as well as the savings to be gained by putting UAV and Allumination together. The U.S. home entertainment distribution business of the new combination will be complementary to the operation of our other sales teams: 4 and Fireworks International and will create additional value in our rights library.”


John Schmidt, CEO, ContentFilm, plc said:


“We look forward to working with Jeff and Kerry on this exciting opportunity and we welcome Cheryl Freeman and the UAV and Allumination staff to ContentFilm. We look forward to integrating UAV and Allumination FilmWorks into our company with the same success that we experienced with Fireworks. This deal demonstrates that we are continuing our strategy of acquiring entertainment rights on attractive terms, while building sales and marketing teams that can turn those rights into revenues, cash flows and profits. The growing financial and operating strength of our company in the months since the Fireworks acquisition has given us the ability to exploit this opportunity. I have no doubt that the performance of Allumination in the coming months will provide the foundation for additional growth.”


Kerry McCluggage said:


”Jeff and I are looking forward to bringing Allumination FilmWorks together with the assets and people of UAV’s content division. We believe the combination will create a new dynamic home entertainment company with strengths in both rental and sell-through. We are pleased that ContentFilm partnered with us on this acquisition, and we are delighted to deepen our ties with ContentFilm . John Schmidt has a great team there, and they have executed a remarkable turnaround in the last year. The new business of Allumination will be a strong fit with the ongoing growth plans at ContentFilm.”


- Ends -


John Schmidt/Geoff Webb
ContentFilm PLC Tel: 020 7851 6500


Emma Kane/Sanna Lehtinen
Redleaf Communications Ltd Tel: 020 7955 1410


Notes on ContentFilm PLC:
Further information on the Company and details of the individual titles that make up the Company’s available library is at:
Publication quality photographs are available through Redleaf Communications.


4 is the film sales and finance arm of Content. It specialises in high quality and commercial feature films, acting as an executive producer to assist the film’s producer in securing finance and then marketing and selling the film throughout all the world’s territories. The latest productions include ’Closing the Ring’, directed by Lord Attenborough and starring Shirley MacLaine, Christopher Plummer and Mischa Barton, ’Black Book’ directed by Paul Verhoeven, ’Thank You for Smoking’ which generated more than $20 million at the US box office and the acquisition of worldwide rights to ’I’m Reed Fish’.
Fireworks International is Content’s film and television library sales division with over 2,000 hours of programming including motion pictures, primetime and children’s TV series, mini-series and made-for-television films. It specializes in assisting TV producers to finance their programming and then marketing and selling the programmes throughout the world. Historically its content has included commercial and high-quality multi-episodic programming produced in the USA and Canada. New series of this nature include the comedy drama ‘The Jane Show’ and the mystery drama series ’Whistler’.


Notes on Sagansky and McClugagge
Jeff Sagansky began his entertainment career in 1977 in the programming department of NBC. After leaving NBC, Sagansky oversaw production at Tri-Star Entertainment where he gave the green light to such films as Look Who’s Talking, Peggy Sue Got Married, Steel Magnolias, Glory and About Last Night. In 1990, he joined CBS as Head Of Programming where he engineered CBS’s ratings rise from third to first place in a mere 18 months. While there, CBS developed such critically-acclaimed series as The Nanny, Dr. Quinn: Medicine Woman, Touched By An Angel, Chicago Hope, Picket Fences, and the cult favourite Northern Exposure. In 1998, Sagansky became President and CEO of Paxson Communications Corporation, which currently controls PAX TV. During his four years at Paxson, the network distribution for PAX grew from 60% of U.S. TV households to almost 90%. He is currently an investor and principal of other various media companies.


Kerry McCluggage has been in the entertainment business since 1978. In 1980, he became Universal Television’s youngest Vice President at the age of 25. During his stint at Universal, McCluggage oversaw the development and production of such TV hits as Magnum P.I., The Equalizer, Murder She Wrote, The A-Team, and Miami Vice. He joined Paramount in 1992, where he developed the original plan for UPN and oversaw its successful launch in January of 1995. As Chairman of the Paramount Television Group, he aided in the development and production of the Emmy-Award-Winning series Frasier and everyone’s favourite magazine show Entertainment Tonight, among many others.