Capitalizing on the great success of the hit TV show American Idol and its music sales, as well as enjoying the rights to Elvis Presley's Graceland estate, CKX Inc. (CKXE) said it would be taken private by its CEO in a $1.33 billion buyout. The shares jumped 35% to $14.40 during trading on the Nasdaq June 1 on the news.
The New York-based company said its shareholders would receive $13.75 in cash and one share of FX Luxury Realty LLC for each share of CKX. FX Luxury is an affiliate of CKX CEO Robert F.X. Sillerman, and has real estate interests in Las Vegas as well as licenses to use Elvis Presley's and Muhammad Ali's names in the development of real estate and attractions.
The sale of CKX will be done through a merger with 19X, Inc., a private company owned by Sillerman and Simon R. Fuller, the creator of American Idol. Fuller is a director of CKX and the CEO of 19 Entertainment Limited, a subsidiary of CKX. The deal will be funded through a combination of equity and debt financing.
The cash portion of the offer is a 29% premium to CKX's closing share price of $10.63 on Thursday. On Friday, shares soared to a high of $15.34 before coming back a bit.
"After two successful years of developing and exploiting the assets we have acquired, during which time we have seen tremendous year over year growth, we have come to realize that there is a substantial opportunity to capitalize on the Elvis Presley and Muhammad Ali assets in real estate and location-based attractions. However, the pursuit of these opportunities would require a significant investment of capital, which could hinder our ability to grow the core area of our business and which is not consistent with the business plan that we have always described to our stockholders," said Sillerman in a press release.
Fuller added in the release: "I am extremely proud of what we have accomplished and am looking forward so much to continuing to work with Bob building the amazing assets that we have in Idol, Elvis Presley, Muhammad Ali and the Beckhams. I believe this transaction provides the best way to maximize the value we have created."
Though American Idol is one of the most popular shows on TV, the owner of the rights to it isn't widely followed on Wall Street. On May 10, Bear Stearns analyst Christopher Ensley kept a peer perform recommendation on CKX shares after the company reported first-quarter results. CKX reported first-quarter revenue of $49.6 million, up 20.6% from a year earlier. Ensley noted that revenue exceed his expectations at its 19 Entertainment (driven by American Idol) and Elvis Presley Enterprises, the company's two most important businesses, but Ali Enterprises and MBST revenue were disappointing.
CKX's first-quarter EBITDA rose 33% to $14 million, below Ensley's forecast of $16.3 million due to underperformance in some some segments and higher-than-expected overhead costs.
For 2007, Ensley kept his EBITDA forecast at $62 million, and raised his revenue forecast for CKX by nearly $3 million to $234.5 million, given the strong performance of American Idol and Graceland, along with growth drivers he sees for those segments this year. For example, the company is planning several events in August at Graceland commemorating the 30th anniversary of Presley's death, and may also expand Graceland in Memphis, the analyst says. It also announced it will create an Elvis-themed show for Cirque de Soleil in Las Vegas in late 2009. For American Idol, the new drivers will be "unique new interactive features" via telephone and online, along with the summer tour and music sales.
Still, Ensley noted that back on May 10, the stock priced at $11.29 was trading at 18 times his projected 2007 EBITDA forecast, above other niche entertainment stocks. He said the premium reflected the new projects that "could greatly increase the size of the company in the long term" as well as the potential for the company to make acquisitions, given its net cash position and $175 million credit facility. "While we applaud CKX's creativity in devising new ways to profit from existing content, we would also note that some of these new initiatives are unproven (ie, telephony revenues) and therefore lack visibility," Ensley said in the note. (Bear Stearns is a market maker in CKX securities and a senior managing director of Bear Stearns owned 500,000 shares as of May 10.)